Rupee Rebounds, Opens Stronger Against Dollar Amid Brent Price Correction
Rupee Opens Higher on Easing Brent Crude Prices
The Indian rupee opened 24 paise higher on May 6, as Brent crude prices eased overnight. The currency opened at 95.04 against the dollar after ending the previous session at 95.28.
The overnight decline in Brent crude prices was attributed to US President Donald Trump's announcement of a possible peace deal with Iran, which eased supply chain concerns. Brent crude cooled more than a percent overnight to trade at $108 a barrel, after Trump announced a brief pause to "Project Freedom", an operation to help escort ships through the Strait of Hormuz, citing "great progress" towards an agreement with Iran. The blockade around Iranian ports will continue, he added. There was no immediate reaction from Iran in this regard.
India meets around 85 percent of its energy needs through imports. Higher Brent crude prices add to the country's import bill, widening the current account deficit and weighing on the currency. The rupee has come under pressure, with oil refiners taking advantage of the present levels to hedge their positions to pre-empt a further fall. The Reserve Bank of India (RBI), on the other hand, has likely been in the market to prevent any sharp depreciation, traders say.
The rupee's recent movement against the US dollar is a cause for concern. The USD/INR pair has moved significantly, and from a near-term perspective, the recent move appears somewhat stretched. The Rs 95.30– Rs 95.50 zone is likely to act as a strong resistance area, where the pair may not sustain further upside without a fresh trigger.
Oil markets have been highly volatile due to headlines about the US-Iran war. Just two days ago, the ceasefire looked in jeopardy after Trump announced the plan to escort stranded tankers through the vital energy route. Iran fired on ships and a port in UAE, as the two sides wrestled for the control of the strait.
Persistent pressure on the rupee is fuelling expectations of measures to boost dollar inflows. The Reserve Bank of India is studying ways to mobilise such flows, while Bloomberg News reported that the central bank is weighing a plan for state-owned lenders to sell foreign-currency bonds.
Comparison of Rupee Movement
| Date | Rupee Value Against USD |
|---|---|
| May 5 | 95.28 |
| May 6 | 95.04 |
Note: The rupee opened 24 paise higher on May 6 than its previous closing value.
Investor Takeaway
The rupee may see some relief due to the easing of Brent crude prices, but investors should continue to monitor the situation.
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