Indian rupee edges higher as optimism over Iran peace deal firms

MUMBAI: The Indian rupee closed slightly stronger on Thursday on growing optimism over a potential deal to end the Iran war, which kept oil prices below $100 a barrel and lifted global equities to record highs.

The Indian rupee closed at 93.1950 against the U.S. dollar, up 0.2% from its previous close.

Traders said the price action was largely driven by client flows, aided by positive cues on the Iran war and tighter limits on banks’ net open positions, which curtailed appetite for wagers against the currency.

Optimism grew on Thursday that the war in the Middle East may be nearing an end, with a key Pakistani mediator in Tehran and U.S. President Donald Trump’s administration talking up hopes for a deal that could reopen the crucial Strait of Hormuz.

“Even as news flow has been erratic, investors are gravitating towards the view that the worst may be over. Hopes are high that a US-Iran deal may be struck over the coming days,” analysts at DBS said in a note.

DBS added India’s recent FX curbs have raised hedging costs for foreign investors, which, along with disruption in onshore and NDF price discovery as well as volatility in FX swap implied yields, have weighed on foreign equity and debt flows.

On Thursday, Indian stocks ended a tad lower, lagging global peers, while the yield on the 10-year benchmark bond ticked up after the government included the paper in its first switch operation of the year.

Overseas investors have net sold over $6.5 billion of stocks and bonds in April so far.

Participants in a Reuters FX poll indicated that investors are most bearish on the rupee among Asian currencies, despite a marginal improvement in sentiment on prospects of de-escalation in the Middle East conflict.