Rupee hits five-week high after oil tumbles; Traders eye more upside

The Indian rupee rose for a second straight session against the US dollar on Monday, as oil prices eased following a tentative agreement between the US and Iran to end their conflict and reopen the crucial Strait of Hormuz. The currency strengthened after the Reserve Bank of India’s move to attract dollars into the economy on June 5, while the central bank did not move on rates or change its “neutral” stance.

On Monday, the local currency ended 0.4% higher at 94.71 against the previous session’s close of 95.11. During the day session, the rupee touched 94.4625, its highest level in five weeks.

The currency’s year-to-date decline has eased to 5.6%. Last month it hit a record low of around 97 per dollar.

Traders said the currency could enter a more supportive phase nearby with lower oil prices and central bank measures starting to attract dollar inflows. “The news of the end of the war is a positive development for the currency, but we do not see a one-sided rally and the currency may move towards 93.25 in the near term,” said Victor Roy, head of treasury at CTBC Bank.

Benchmark Brent crude fell more than 5% to around $83 a barrel on Monday, a positive for India, which imports about 90% of its oil needs.

Economists have upgraded their forecasts for India’s balance of payments following the RBI’s measures, with most now expecting a smaller surplus compared to earlier estimates of a larger deficit.

The extent of the rupee’s rally will depend on the comfort of the central bank, which may be keen to use strength to par its large FX forward book, they added.

The RBI’s short dollar position in the FX market hit a record high of $104 billion in March, reflecting its efforts to protect the rupee.