Rupee set to rally as crude dives on Israel-Iran de-escalation
The 1-month non-deliverable forward indicated an open in the 86.10 to 86.15 range, versus 86.75 in the previous session.
Brent prices fell 2% in Asia after U.S. President Donald Trump said Iran and Israel had agreed to a ceasefire. Brent had already slid 7% on Monday when Iran made a token retaliation against a U.S. base.
"With Trump having lent a hand in brokering a peaceful resolution, the prospect of a prolonged conflict with U.S. involvement has been re-priced," clearing the way to add risk, Chris Weston, head of research at broker Pepperstone, said.
U.S. equities rose Monday and futures indicated a further rally. The dollar index softened and Asian equities and currencies advanced.
"It is expected that the big opening dip (on USD/INR) will run into buy orders. I do not think 86 will be taken out, though I reckon that positions are on the lighter side and interbank will be on the hunt to put in shorts," a currency trader at a Mumbai-based bank said.
Brent crude is now trading below $70 a barrel — near levels seen before Israel's first strike on Iran. The rupee was at 85.60 prior to that escalation.
There is "definitely" more room for the rupee to rally, a treasury official at a bank said. It's just that large drops on USD/INR tend to "struggle to hold on".
Meanwhile, Federal Reserve vice-chair Michelle Bowman said the first interest rate cut this year could come as soon as July, further undermining the dollar and boosting risk.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 86.25-86.30; onshore one-month forward premium at 10.25 paise
** Dollar index down at 98.17
** Brent crude futures down 2.1% at $69.88 per barrel
** Ten-year U.S. note yield at 4.35%
** As per NSDL data, foreign investors bought a net $1,093.6 mln worth of Indian shares on June 22
** NSDL data shows foreign investors sold a net $18.8 mln worth of Indian bonds on June 22
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