Indian rupee hooked to oil prices as markets gauge Iran diplomacy hopes

MUMBAI: The Indian rupee is poised for a muted start on Wednesday and traders reckon that directional moves will be contingent on ​oil prices amid hopes of a diplomatic solution to the US-Iran ‌war through talks at the UN.

The Indian rupee is expected to open nearly flat around 95.60-95.65 per dollar compared to its close at 95.59 in the previous session.

Oil ​markets remain the key driver for Indian assets with Brent crude ​futures hovering near two-week lows at $99.22 per barrel, on hopes ⁠that diplomacy at the UN General Assembly could pave the way ​for a resolution to the Middle East war.

US President Donald Trump on Tuesday ​said that he could annihilate Iran if there is no deal, but also suggested an agreement could come soon.

“For Asia in particular, the good news is that oil prices ​have moderated somewhat from the highs,” analysts at MUFG said in a note, ​while cautioning that “the path forward remains unclear given the lack of clarity around a possible ‌resolution ⁠of the conflict.”

Regional currencies traded mixed while shares across Asia were mostly higher, buoyed by signs of healthy consumer demand for AI apps. India has remained a laggard among regional equity markets due to its lack of AI-linked ​opportunities, contributing to ​weakness in foreign ⁠flows to its equity market.

Overseas traders have sold Indian shares worth $1.81 billion so far in September, taking year-to-date outflows to $25.87 billion, according ​to stock depository data.

Weakness in capital flows and stress ​on account of ⁠an elevated energy bill has translated to pressure on the rupee, partially absorbed by frequent central bank interventions, that have kept the currency’s losses in check.

Traders reckon that rhythm ⁠is likely ​to persist in the near-term, especially after ​the central bank’s bountiful haul of capital inflows under one-off policy measures to attract foreign currency boosted India’s ​FX reserves to a record high.