Oil rise on renewed US-Iran hostilities set to fizzle India rupee rally

MUMBAI: The Indian rupee’s two-day rally is set to stall at Friday’s open, pressured by rising oil prices after renewed fighting between ​the US and Iran threatened a fragile ceasefire.

The rupee is expected ‌to open in the 94.40-94.50 range, traders said, after settling at 94.25 on Thursday. The currency has rallied more than 1% over the past two sessions, recovering from a all-time low of 95.4325 ​hit earlier in the week.

Oil prices climbed on Friday after renewed US-Iran ​hostilities dashed hopes of progress on reopening the Strait ⁠of Hormuz.

Iran accused Washington of breaching a month-long ceasefire, while the ​US said it carried out retaliatory strikes after Iranian fire on its ​naval vessels transiting the strait on Thursday.

However, US President Donald Trump said the ceasefire remained in effect, while Washington awaited Tehran’s response to its ​latest peace proposal.

Brent crude, which slid to $96 on Thursday, on hopes of peace, has ​since climbed above $100 to around $101.50.

Once again, the news flow has shown that ‌the ⁠path towards a lasting agreement is not “linear”, Chris Weston, head research at Melbourne-based broker Pepperstone, said.

Markets are having to reassess assumptions made over the last couple of sessions about the trajectory of ​the conflict and ​the normalisation ⁠of shipping through Hormuz, he added.

The rupee’s recent moves have been heavily conditioned by oil price swings, with crude’s ​volatility - fuelled by rapidly shifting expectations of ​a U.S.-Iran ⁠deal - spurring sentiment-led swings in the currency.

A series of central bank measures to cushion the rupee has had only a short-lived impact.

Market participants said ⁠that ​a sustained reprieve would require oil prices to stabilise and attendant ​dollar outflows to moderate.

Structural dollar demand from oil refiners continues to exert persistent pressure on ​the rupee, prompting hedging activity by importers.