Rupee strengthens as oil prices tumble after US-Iran peace breakthrough

The Indian rupee strengthened sharply against the US dollar on Monday as crude oil prices declined following the announcement of a peace agreement between the United States and Iran, easing concerns over global energy supplies and improving sentiment towards emerging markets.

The rupee rose by 58 paise in early trade to 94.60 against the dollar after opening at 94.70 in the interbank foreign exchange market. The local currency had already gained 67 paise in the previous session to close at 95.18, extending its recent recovery from the lows witnessed in May.

Market participants attributed the rally in the rupee to a combination of factors, including a sharp fall in crude oil prices, gains in domestic equities and a softer US dollar.

The move came after US President Donald Trump announced that Washington and Tehran had finalised an agreement aimed at ending more than three months of conflict and reopening the Strait of Hormuz, a critical shipping route through which nearly one-fifth of the world's oil supply passes.

The development triggered a broad relief rally across financial markets as investors reassessed the risks associated with energy prices and global trade disruptions.

Brent crude, the international benchmark, fell more than 4.5 per cent to around $83 per barrel, reducing concerns about imported inflation for major oil-consuming economies such as India.

According to market experts, the easing of geopolitical tensions could significantly improve India's external sector outlook by lowering the country's oil import bill and reducing pressure on the balance of payments.

Analysts noted that the rupee has been steadily recovering since touching a low of 96.96 against the dollar in May and could continue to appreciate if crude prices remain subdued and risk sentiment improves further.

The US dollar also weakened against major global currencies. The dollar index, which measures the greenback against a basket of six currencies, slipped 0.22 per cent to 99.53, providing additional support to emerging market currencies.

Domestic equities reflected the improved mood. The Sensex jumped more than 1,100 points in opening trade, while the Nifty gained over 330 points as investors welcomed the prospect of lower energy costs and improved macroeconomic conditions.

Despite the positive market reaction, foreign institutional investors remained net sellers, offloading Indian equities worth Rs 1,082 crore in the previous session, according to exchange data.

Meanwhile, the Reserve Bank of India reported that the country's foreign exchange reserves declined by $711 million to $681.61 billion during the week ended June 5, largely due to a reduction in foreign currency assets.

For now, however, currency markets appear focused on the potential economic benefits of lower oil prices, with traders expecting the rupee to remain on a firm footing if geopolitical stability in West Asia is sustained.

With PTI inputs