Rupee`s recovery faces oil, equity outflow test; mixed Iran signals cloud outlook
The Indian rupee's recovery will face a test on Wednesday from choppy oil prices and foreign outflows from the country's equity market, with conflicting signals on a possible Iran de-escalation keeping traders cautious on the currency's ability to hold past the 92-per-dollar mark.
The 1-month non-deliverable forward indicated the rupee will open in the 91.85-91.90 range versus the U.S. dollar, having climbed 0.6% on Tuesday to 91.8050.
Bankers said that while the rupee’s downside risks have diminished in the wake of the central bank's intervention and a pullback in crude oil prices, lingering Iran-war related risks and outflows from Indian equities could still limit any sustained recovery.
Brent crude has retreated to around $88 a barrel, well below the near-$120 peak reached at the height of concerns over supply disruptions from the Iran war. Higher oil prices are a key risk for net energy importer India.
Hopes of a possible de-escalation in the conflict, along with expectations that the G7 could release strategic oil reserves and shifting newsflow about the status of shipping through the Strait of Hormuz have together triggered a pullback in prices.
Morgan Stanley said in a daily note to clients that "none of these outcomes are guaranteed", adding that messaging from both the U.S. and Iran on de-escalation remains mixed.
Asian shares and U.S. equity futures pushed higher on Wednesday, indicating risk appetite was on the mend. A Wall Street Journal report saying that the International Energy Agency has proposed the largest release of oil reserves in its history to help bring down crude prices boosted risk assets.
EQUITY OUTFLOWS
In addition to swings in oil prices, the rupee is grappling with foreign investors selling Indian equities.
Foreign investors have pulled out nearly $4 billion from Indian equities so far this month.
"The rupee may remain in a volatile range for now, with oil prices, foreign portfolio flows and RBI deciding the near term moves," a currency trader at a private sector bank said.
