The Indian rupee rose on Monday after the announcement of the US-Iran peace deal, which drove oil prices lower. The domestic currency strengthened as much as 94.45 against the dollar before settling at 94.72, down 40 paise from the previous close.
The US and Iran said they have reached an agreement that would reopen the Strait of Hormuz. Consequently, crude oil prices fell 4.5% to $82.8 per barrel on Monday.
“Crude oil prices fell after the peace deal was announced, and the dollar index also eased — both factors have supported positive momentum for the rupee,” said Dilip Parmer, research analyst, HDFC Securities.
All Asian currencies strengthened on Monday after the announcement. The Indian rupee was the third best performer, behind the Philippine peso, which rose 1.44%, and the Indonesian rupiah, up 0.94%.
“With the peace deal and anticipated inflows from RBI measures, the near-term view is constructive. As long as the rupee stays above 96, there is a high probability of strengthening to 94.10. However, I don’t expect the currency to rise above 94 against the dollar before the actual peace deal sign.”
Market participants expect $50 billion from the central bank’s measures to attract inflows. The rupee has risen by more than 1% since those measures were announced on June 5. In the current financial year so far, the rupee declined 5.4%, with major depreciation happening after the onset of the war in late February. Over the past year, it has fallen 9.2%.
“News of the trade deal, combined with measures announced by the RBI and the government, has created a short‑term appreciation bias for the rupee. The currency could test the 93–93.50 over the next quarter. However, any sharp rally is likely capped by the RBI’s roughly $95 billion short forward book and lingering geopolitics, since this is only a 60‑day ceasefire to negotiate a nuclear deal,” said Ritesh Bhansali, deputy CEO, Mecklai Financial Services.
Meanwhile, bond yields have declined due to fall in oil prices. The yield on the 10-year benchmark bond declined 1 bps to 6.88% on Monday. Over the past week, it came down 11 bps due to the RBI measures and falling oil prices.
