Rupee upswing may slow with Iran peace deal facing market test
The Indian rupee's upward momentum, which has lifted it to a one-month high, is likely to stall on Tuesday with markets assessing the durability of the Iran peace deal and whether the dip in oil prices will be sustained.
The rupee is expected to open largely flat against the U.S. dollar after climbing 0.42% on Monday to 94.71. The currency has rallied 1.1% over the last two sessions to 94.4525, buoyed by a slide in crude oil prices following the Iran?U.S. peace deal.
"It's fairly straightforward from here: if the drop in oil holds up, there is room for a move to 93.50 to 94," a currency trader at a bank said.
"If the drop proves temporary, then it's back to rupee being under pressure. I am inclined to think that this possibility should not be ruled out in the midst of the current news flow."
Brent crude on Monday dropped to $82.40, the lowest level in more than three months. The key question for the outlook of the rupee and other emerging market currencies is whether this decline in oil prices will hold, which in turn will largely depend on the durability of the U.S.-Iran peace deal.
Markets on Tuesday settled into a more measured tone on developments in the Persian Gulf after the initial excitement over the agreement between Washington and Tehran began to fade. Oil prices edged higher, while Asian equities and currencies were mostly weaker and U.S. Treasury yields rose.
"Uncertainty remains around the details of the (US-Iran) negotiations and the path around reopening (of the Strait of Hormuz)", analysts at MUFG Bank said in a note.
Whether the initial enthusiasm in markets continues will depend on how negotiations pan out and whether Israel plays ball on Lebanon, the analysts said.
