Rupee strengthens against dollar on softer oil and ceasefire optimism, but headwinds persist

The rupee opened stronger on Friday (May 29), tracking easing crude oil prices and reports of a potential extension of the US–Iran ceasefire, while broader dollar flows and global cues kept sentiment mixed.

The currency opened at 95.55 per dollar versus the previous close of 95.69, marking an appreciation of 14 paise.

Sentiment in currency markets was influenced

by reports that Washington and Tehran had agreed to extend a ceasefire, though traders remained cautious amid repeated instances where earlier diplomatic signals failed to translate into a durable agreement.

Oil prices declined on the back of ceasefire optimism, even as remarks from US Vice President JD Vance that a deal was “close” but “not there yet” prevented a sharper fall in crude.

Brent crude futures eased, with July contracts down 1.1% at $92.6 per barrel, while the more actively traded August contracts slipped 1% to $91.7. Analysts noted that markets have already priced in a significant degree of resolution risk, limiting further downside unless a formal deal is confirmed.

“Any confirmation of a deal that reopens the strait means that significant further downside is likely limited, particularly during the early stages of a ceasefire,” ING analysts said in a note.

Despite the softer oil backdrop, pressure points remain for the rupee. Traders flagged dollar outflows linked to global equity index adjustments as a near-term headwind. Elevated crude prices continue to pose macroeconomic risks for India, which imports about 80% of its energy needs, keeping Asia’s net oil importers under watch.

Positioning data also reflected caution. The rupee has fallen about 5% since the Iran conflict escalated in late February and was on track for a near 1% month-on-month decline. One-month non-deliverable forwards stood at 96.25, with the onshore forward premium at 30 paise.

The dollar index was at 99.02, while the 10-year U.S. Treasury yield held at 4.44%. Foreign portfolio investors sold a net $107.9 million worth of Indian equities on May 26, even as they bought $29.7 million in Indian bonds, according to NSDL data.

-With Reuters inputs