MUMBAI: The Indian rupee strengthened this week on the back of nascent optimism regarding a US-Iran peace deal but renewed hostilities threatened to yet again sway the outlook for Asian currency.
Volatility expectations for the rupee drifted higher as investors remained on tenterhooks for the next chapter in the more than two-month-long war that had upended the macroeconomic outlook for oil importers such as India.
A flare-up in fighting occurred on Thursday as Washington awaited a response from Tehran to its proposal to end the conflict. US President Trump said a ceasefire is still in effect.
The rupee declined nearly 94.70 to the dollar before paring losses to end the session at 94.40, up 0.4 percent week-on-week.
The currency declined 0.2 percent from the previous close while the 1-month implied volatility for the dollar-rupee rose to 5.7 percent, the highest since mid-April.
Price action on Friday had a “swing like feel to it with support (for USD/INR) consistently emerging around 94.40 while state-run banks were active around the 94.70 mark,” a trader at a foreign bank said.
If optimism on a US-Iran deal is misplaced yet again, the dollar would have plenty of upside room to recover with “a good chance investors will prove more cautious and won’t jump as aggressively into de-escalation trades,” analysts at ING said in a note.
Comments