Indian rupee ends a tad higher as oil slide, foreign inflows lift sentiment

MUMBAI: The Indian rupee closed modestly stronger on Thursday and for the week as falling oil prices improved sentiment alongside signs of a pickup in foreign portfolio inflows, while caution lingered over the prospect of U.S. rate hikes.

The rupee rose about 0.3% on the day to close Thursday’s session at 94.3950 and was nearly flat on the week.

Indian financial markets are shut on Friday for a local holiday. While the currency bounced to an over one-month peak in early trading, it pared some gains due to month-end dollar demand from importers and on account of maturing non-deliverable forward contracts.

Early gains were led by foreign banks’ dollar sales, likely on behalf of custodial clients, a trader at a private sector lender said.

Short bets on the rupee have retreated from multi-month peaks, a Reuters poll showed on Thursday, as easing oil prices and central bank measures to attract foreign capital took some pressure off the currency.

Brent crude oil futures fell nearly 2% to $72.3, levels last seen before the Iran war began in late February, as expectations of rising supply from the Middle East outweighed demand concerns.

Lower oil prices have reduced concerns around a wider current account deficit and broader macro deterioration for India, BofA Global Research said in a note.

“We believe market has reduced long USD/INR positions with NDF implied yields now only marginally above onshore yields,” it said.

Elsewhere, global equities were largely trading higher, led by technology stocks after strong earnings and forecasts from chip giants Micron and Qualcomm helped revive the AI rally.

India’s benchmark equity index Nifty 50, which has limited exposure to the AI theme, was up about 0.2% against a 1.5% rise in MSCI’s gauge of Asian shares.

Investors are now awaiting U.S. PCE inflation data due later in the day, which is expected to show core prices rose 0.3% in May, putting the annual rate at 3.4%. Headline inflation is forecast at 0.5% for the month and 4.1% year-over-year.

Hotter-than-expected inflation may bolster wagers on rate hikes in money markets, which have already priced a September move with near certainty.