India rupee market optimism tempered by Iran uncertainty, hedging demand
The Indian rupee is likely to open little changed to slightly weaker on Tuesday, weighed down by uncertainty over whether the U.S. and Iran can reach a diplomatic resolution to end the war, with likely importer hedging adding to the pressure.
The rupee is expected to open in the 95.32 to 95.40 range, according to traders, after settling at 95.3375 per U.S. dollar on Monday.
The currency climbed to a one-month high of 95.1175 before encountering importer-led dollar demand amid companies hedging future payables.
Importer demand, which has been on the higher side over the last few days, intensified on Monday after the rupee's swift recovery from near 96.70 levels.
The rupee's recovery is now running into actual corporate dollar demand, which is to be expected, a currency trader at a bank said.
"Levels near to 95 look very attractive when you consider where the rupee was not too long ago," he said.
The trader said that the rupee sustaining at around current levels would be difficult unless oil risks recede.
Oil prices inched higher after tumbling in the previous session, with concerns persisting over Middle East supply disruptions on uncertainty over whether the U.S. and Iran can make a deal.
U.S. President Donald Trump said on Sunday he was holding off on fresh attacks on Iran while talks continued. Iran, however, pushed back on Monday, with foreign ministry spokesperson Esmail Baghaei saying no negotiations with Washington were under way and no meetings had been scheduled.
Markets may be "getting ahead of themselves once again" in their optimism that a deal may be reached," ING said in a note.
With Iran denying that any talks are underway and Trump warning of consequences if no deal materialises, the backdrop leaves ample room for a renewed escalation, it said.
