The Indian rupee strengthened sharply on Friday after crude oil prices fell amid growing expectations of a possible peace agreement between the United States and Iran.
The rupee was trading 0.5 per cent higher at 95.30 against the US dollar by 10.35 am IST, Reuters reported. The move came as Brent crude dropped to $88.44 per barrel, its lowest level in two months, following comments from US President Donald Trump suggesting that a peace deal with Iran could be signed as early as this weekend.
Iran, however, said it had not yet taken a final decision on any agreement, leaving markets closely watching further developments.
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Falling oil prices ease pressure on rupee
The decline in crude prices provided support to the Indian currency by reducing concerns over the country's import bill. India is the world's third-largest importer and consumer of oil, making energy prices a key factor influencing the rupee's performance.
A fall in oil prices typically helps narrow the trade deficit, lowers demand for dollars from importers and eases inflation concerns.
Market participants noted that importer demand for dollars remained subdued during the session.
"Importers are not very active in buying dollars so far today, and that is also helping the move," a trader with a brokerage told Reuters.
Global markets react to peace hopes
Investor sentiment improved across global markets after signs of progress in US-Iran negotiations. Asian equities advanced, US Treasury yields declined and the dollar weakened against several currencies, per Reuters.
The proposed agreement, if finalised, would represent a major diplomatic development in efforts to end the conflict that has continued for the past three months.
Durable oil decline seen as key support
The rupee has faced pressure in recent months due to elevated crude prices, foreign portfolio outflows and broader strength in the US dollar. The Reserve Bank of India has introduced several measures to support the currency and attract capital inflows.
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However, traders believe a sustained decline in oil prices would provide stronger support.
"For the rupee, the real relief will come only from a deal that pushes oil durably lower and removes the risk premium," a currency trader at a private bank told Reuters.
"Until then, the market will remain cautious about chasing the move, and the currency may not be able to rise above 95."
FAQs:
Why did the Indian rupee strengthen on Friday?
The rupee gained after crude oil prices fell sharply on expectations of a possible peace agreement between the US and Iran.
How do lower oil prices help the Indian rupee?
Lower oil prices reduce India's import costs, ease demand for dollars and help contain inflation and trade deficit pressures.
