Indian rupee supported by Iran truce hopes, hedging keeps it on a leash

MUMBAI: The Indian rupee is set to open little changed on Thursday and stay within a narrow range, with Iran ceasefire ​optimism countered by persistent dollar hedging from importers and firms with ‌overseas borrowings.

The Indian rupee will open in the 92.34-92.38 range versus the US dollar, having settled at 92.3725 on Wednesday.

The currency, having rallied on the back of ​steps taken by the central bank, has largely settled into a ​range around the 93 level.

The rupee’s intraday moves over recent ⁠sessions have been limited to around 30–35 paisa, with the rupee ​mostly opening on a subdued note.

Volatility expectations, which had jumped following the Reserve Bank ​of India’s measures that introduced a fair degree of uncertainty about the currency’s outlook, have since dropped.

The Iran ceasefire, the resulting pullback in oil prices and an improvement in ​risk appetite have helped bring near‑term volatility expectations back down, traders say.

One‑month ​implied volatility has cooled to about 4.9%, down from over 8% at the peak of ‌worries ⁠over the Iran war and the RBI’s actions.

While volatility expectations have cooled, most bankers see limited upside for the rupee from current levels, pointing to continued hedging demand from importers and interest in locking in longer‑term ​dollar liabilities.

“(I) see ​a range of ⁠92.80-94 for the rest of this month,” said a spot FX trader at a private sector bank.

Upbeat risk, rangebound oil

Asian ​equities pushed higher on mounting optimism about a deal ​to halt ⁠the Iran war.

Meanwhile, oil prices dipped slightly on hopes of a cool down in U.S.-Iran tensions, following a report that Iran could allow ships to pass through ⁠the Strait ​of Hormuz.

The White House expressed optimism about reaching ​a deal to end the war with Iran, while also warning of increasing economic pressure ​against Tehran if it remains defiant.