Indian rupee hooked to oil prices as markets gauge Iran diplomacy hopes
- The Indian rupee is expected to open nearly flat around 95.60-95.65 per dollar compared to its close at 95.59 in the previous session
The Indian rupee is poised for a muted start, influenced by fluctuating oil prices and hopes for a US-Iran diplomatic resolution. Foreign outflows from Indian equities also pressure the currency.
- Oil price fluctuations and the rupee.
- Foreign outflows from Indian equity markets.
- Central bank efforts to stabilize the rupee.
MUMBAI: The Indian rupee is poised for a muted start on Wednesday and traders reckon that directional moves will be contingent on oil prices amid hopes of a diplomatic solution to the US-Iran war through talks at the UN.
The Indian rupee is expected to open nearly flat around 95.60-95.65 per dollar compared to its close at 95.59 in the previous session.
Oil markets remain the key driver for Indian assets with Brent crude futures hovering near two-week lows at $99.22 per barrel, on hopes that diplomacy at the UN General Assembly could pave the way for a resolution to the Middle East war.
US President Donald Trump on Tuesday said that he could annihilate Iran if there is no deal, but also suggested an agreement could come soon.
“For Asia in particular, the good news is that oil prices have moderated somewhat from the highs,” analysts at MUFG said in a note, while cautioning that “the path forward remains unclear given the lack of clarity around a possible resolution of the conflict.”
Regional currencies traded mixed while shares across Asia were mostly higher, buoyed by signs of healthy consumer demand for AI apps. India has remained a laggard among regional equity markets due to its lack of AI-linked opportunities, contributing to weakness in foreign flows to its equity market.
Overseas traders have sold Indian shares worth $1.81 billion so far in September, taking year-to-date outflows to $25.87 billion, according to stock depository data.
Weakness in capital flows and stress on account of an elevated energy bill has translated to pressure on the rupee, partially absorbed by frequent central bank interventions, that have kept the currency’s losses in check.
Traders reckon that rhythm is likely to persist in the near-term, especially after the central bank’s bountiful haul of capital inflows under one-off policy measures to attract foreign currency boosted India’s FX reserves to a record high.