Rupee jumps 52 paise against US dollar as oil prices retreat

The Indian rupee opened sharply higher against the US dollar on Thursday (May 21), strengthening by 52 paise to 96.30 per dollar compared with Wednesday’s (May 20's) close of 96.82/$, as easing crude oil prices and softer US Treasury yields improved sentiment towards emerging market currencies.

The domestic currency gained around 0.54% in early trade after Brent crude prices tumbled 5.6% overnight and hovered near the $105-per-barrel mark.

Lower oil prices are typically supportive

for the rupee because India is a major crude importer, and softer energy costs help ease pressure on the country’s trade balance and inflation outlook.

The rebound in the rupee also tracked a decline in US bond yields after concerns over inflation and possible Federal Reserve rate hikes eased alongside the fall in oil prices. The benchmark 10-year US Treasury yield dropped nearly 10 basis points on Wednesday (May 20) to below the 4.60% level.

Market participants, however, said the rupee’s gains could remain capped as importers continued to buy dollars on dips.

“Based on recent price action, any opening dip in dollar/rupee is likely to be bought into,” an FX salesperson at a bank said, noting that importer demand has emerged even on small declines in the currency pair.

Investors continued to monitor developments in the West Asia, particularly US-Iran negotiations. US President Donald Trump said discussions were in the final stages while warning of further attacks if an agreement was not reached.

Analysts cautioned that volatility in global bond markets and geopolitical tensions could continue to pressure emerging market currencies, including the rupee.

“Hard to shake off the bearish dynamic without a solution in the Middle East,” ING Bank said in a note.

Meanwhile, the Reserve Bank of India on Wednesday (May 20) announced a $5 billion dollar/rupee buy-sell swap auction with a three-year tenor, scheduled for May 26. Bankers said the move is expected to reduce forward premiums in the currency market.

-With Reuters inputs