New Delhi: The rupee strengthened by 24 paise to 93.74 against the US dollar in early trade on Monday, supported by declining crude oil prices, robust foreign institutional investment inflows and growing expectations of a diplomatic breakthrough in the Middle East.
Forex traders said easing geopolitical tensions and a reduction in the risk premium on crude oil have improved sentiment towards the Indian currency, raising expectations of further appreciation.
At the interbank foreign exchange market, the rupee opened at 93.85 against the greenback before strengthening to 93.74, registering a gain of 24 paise over its previous close.
On Friday, the domestic currency had surged 43 paise to settle at 93.98 against the dollar.
Renewed optimism over a possible diplomatic resolution to the Middle East conflict emerged after US President Donald Trump indicated over the weekend that further military strikes against Iran were highly unlikely if negotiations progressed towards a substantive agreement.
The development has helped ease concerns over potential disruptions to global energy supplies, putting downward pressure on crude oil prices.
“The improvement in diplomatic expectations is already reflecting in energy prices. Brent crude, which had climbed to around USD 117.64, has now slipped below USD 100 and is trading near USD 98. For currency markets, even the possibility of a lasting agreement is important,” said Amit Pabari, Managing Director of CR Forex Advisors.
Brent crude, the global oil benchmark, declined 0.15 percent to USD 98.17 per barrel in futures trade.
Lower crude prices are particularly favourable for India, which depends heavily on imported oil, as they help contain import costs and reduce demand for US dollars.
Strong foreign portfolio investment inflows also supported the rupee. Foreign institutional investors (FIIs) purchased equities worth Rs 13,749.82 crore on Friday, according to exchange data.
Meanwhile, the dollar index, which measures the greenback’s strength against a basket of six major currencies, slipped 0.12 percent to 102.18.
Domestic equity markets, however, opened marginally lower on Monday. The BSE Sensex declined 93.95 points to 80,919.19, while the NSE Nifty fell 30 points to 24,968.80.
Currency market experts believe the rupee’s move below the 94-per-dollar level could pave the way for further appreciation, provided crude prices remain subdued and geopolitical conditions continue to improve.
“With USD/INR breaking below the 94.00 mark, the probability of further rupee appreciation towards 93.50 and 93.00 has increased. On the upside, 94.40–94.50 is likely to act as the immediate resistance zone,” Pabari said.
Meanwhile, India’s foreign exchange reserves declined by USD 2.691 billion to USD 717.056 billion during the week ended October 30, according to data released by the Reserve Bank of India (RBI) on Friday.
(PSU Watch is India's Business News centre that places the spotlight on PSUs, Bureaucracy, Defence and Public Policy. 👉 Click to join our channel now: PSUWatch WhatsApp Channel. Prefer LinkedIn? Follow PSU Watch on LinkedIN. Click to stay connected on Twitter here and stay updated.)