Central bank intervention, oil price dip help Indian rupee edge modestly higher

MUMBAI: The Indian rupee ended modestly stronger on Thursday, comforted by likely dollar-selling intervention by the Reserve Bank of India and a dip in oil prices as markets assessed the impact of fresh U.S. strikes on Iran.

The Indian rupee closed at 95.3875 per dollar, up 0.2% from its previous close.

U.S. President Donald Trump said Iran had called “a while ago” and wanted to make a deal. The remarks followed the U.S. military’s fresh strikes on Iran, triggering Iranian attacks on Kuwait and Bahrain.

Brent crude oil prices were last down slightly at $77.5 per barrel, soothing Indian equities and bonds. The Nifty 50 rose 0.3% while the yield on the 10-year bond dipped 2 basis points.

While state-run banks were spotted offering dollars early in the session, broader offers picked up as the rupee held stronger than the psychologically important 95.50 mark and oil prices dipped, traders said.

Asian currencies were mostly firmer as well while the dollar index was hovering just shy of the 101 mark.

“Our bias is that higher energy prices will provide fuel for the Federal Reserve hawks and keep the dollar supported on dips,” analysts at ING said in a note.

Volatility expectations for the rupee have increased slightly following the fresh round of fighting in the Middle East, with the 1-month implied volatility rising to 5.3% from 4.9% at the end of last week.

However, traders and analysts alike reckon that one-way rupee depreciation wagers are unlikely to pile up after policymakers rolled out steps to shore up dollar flows into the economy.

The steps also helped spark a record volume in corporate foreign exchange hedging last month, per clearing house data, with exporters sharply increasing hedges after said measures tempered expectations of a sharp rupee depreciation.