The Indian rupee appreciated 53 paise to close at 95.05 against the US dollar on Friday, following the US and Iran's agreement to extend their ceasefire for another 60 days. According to The Hindu, on Thursday, the US and Iranian negotiators reached a tentative agreement to extend the ceasefire by 60 days and start a new round of talks on Iran's nuclear programme. Forex traders said the USD/INR pair appreciated on an overnight decline in crude oil prices and a fall in the US dollar, as per The Hindu. At the interbank foreign exchange market, the rupee opened at 95.77 against the US dollar, then touched an intraday high of 94.97 and a low of 95.78 during the day. On Wednesday, the rupee had settled higher by 12 paise at 95.58 against the US dollar, showing consistent recovery momentum. The dollar index, which gauges the greenback's strength against a basket of six currencies, was trading at 99.13, up 0.11%, while Brent crude, the global oil benchmark, was trading down 1.81% at $92.01 per barrel in futures trade. Domestic equity and forex markets were closed on Thursday on account of Eid-ul-Azha, with foreign institutional investors offloading equities worth ₹1,042.70 crore on a net basis on Wednesday.
Bank of America's Rahul Bajoria cautioned that the rupee could remain under pressure even if the West Asia conflict eases, with BofA expecting the rupee to weaken to around 98 per dollar by the end of this year and further to 99 over the next 12 months. According to NDTV Profit, Bajoria noted that "The path of least resistance" remains for a weaker rupee despite expectations that an eventual de-escalation in the region could ease pressure on India's current account. "The rupee has been underperforming quite a bit relative to other Asian currencies," Bajoria said, emphasizing that capital outflows and external vulnerabilities continue to weigh on the currency. India was already grappling with capital flow pressures before the conflict began, with the war only adding to funding requirements by widening the current account deficit through higher commodity prices. BofA expects the rupee to weaken to around 98 per dollar by the end of this year and further to 99 over the next 12 months, reflecting broader capital account challenges that are likely to persist.
The Reserve Bank of India's USD/INR buy/sell swap auction on Tuesday received robust market response with nearly twice the notified amount subscribed. According to Business Standard, the central bank received bids worth USD 9.80 billion but accepted just USD 5 billion for a cut-off premium of 910 paise, with the notified amount being USD 5 billion. The RBI received 254 bids at the auction and accepted 144 bids, resulting in a bid-to-cover ratio of 1.96. This strong demand reflects market confidence in the central bank's intervention capabilities and highlights the ongoing pressure on the rupee amid geopolitical uncertainties.
Brent crude prices provided significant relief to the rupee, with the global oil benchmark trading down 1.81% at $92.01 per barrel in futures trade, as per The Hindu. CR Forex Advisors MD Amit Pabari noted that the ceasefire extension reduced immediate fears of fresh disruption in oil supplies, keeping crude oil prices relatively stable. The three-month-old conflict has hit oil-importing Asian economies especially hard, with the Indian rupee, Indonesian rupiah and Philippine peso becoming regional laggards. Higher oil prices present both inflation and growth risks to these economies, with analysts at Goldman Sachs forecasting a further 100bp of hikes in Philippines, and 50bp each in Indonesia and India given high imported energy needs, fiscal policy concerns, current account deficits, and relatively high FX sensitivity. The Philippines is considering an off-cycle rate hike while the Reserve Bank of India is slated to announce its policy decision on June 5.
Anuj Choudhary, Research Analyst at Mirae Asset ShareKhan, expects the rupee to trade with a slight positive bias on renewed optimism over the peace deal between the US and Iran, pending approval from Donald Trump and the Iran supreme leader. According to The Hindu, "We expect the rupee to trade with a slight positive bias on renewed optimism over the peace deal between the U.S. and Iran, pending approval from Donald Trump and the Iran supreme leader," Choudhary said. "Softening crude oil prices and easing of the dollar may also support the rupee. However, any fresh escalations between the U.S. and Iran may pressurise the rupee at higher levels. USD-INR spot price is expected to trade in a range of 94.70 to 95.60." Meanwhile, BSE Sensex closed about 1.4% down at 74,775.7 on Friday, extending losses for a third session, as per Business Standard. The market decline was attributed to ongoing FII outflows, persistent geopolitical uncertainty and weaker-than-normal monsoon forecasts that could impact inflation. Forex traders said attention has now shifted toward the upcoming RBI Monetary Policy Committee meeting scheduled for June 3-5, with experts noting that the RBI might opt for a rate hike or for a status quo decision. The larger question, however, is whether RBI may choose to prioritise currency stability alongside inflation management.
