Rupee to hold above 86 as safe haven premium in dollar erodes
MUMBAI, June 25 (Reuters) - The Indian rupee is expected to open higher on Wednesday, sustaining its rally past the 86 level, supported by a fall in demand for the safe-haven dollar and upbeat risk appetite following the Israel-Iran ceasefire.
The 1-month non-deliverable forward indicated an open in the 85.92-85.96 range, versus 85.9750 in the previous session. The rupee rallied 0.9% on Tuesday, logging its best single-day performance in a month.
Brent crude declined 13.2% over the last two days following the ceasefire, and the dollar index had declined by 0.9%.
Investors pared long dollar positions, unwinding bets built up during the 12-day conflict between the two countries.
"The market is unwinding risk-off trades now that it looks like the conflict won't escalate further," said a currency trader at a Mumbai-based bank.
"We're seeing better offers (on USD/INR) and light exporter selling. Speculators have been taking to (USD/INR) shorts."
With the Middle East risk premium deflating, attention has shifted back to the weakening U.S. exceptionalism narrative — a key driver behind the dollar index's nearly 10% slide so far this year.
Analysts say the dollar's trajectory from here will hinge on how U.S. tariff negotiations unfold and whether Washington can strike trade deals with key partners. Another major driver will be how the U.S. economy holds up amid policy uncertainty and the timing and scale of U.S. Federal Reserve rate cuts.
Fed Chair Jerome Powell stuck to his cautious approach and reiterated that the central bank was in no rush to cut rates at his semi-annual testimony to Congress on Tuesday.
Markets continue to price a low probability of rate cut next month.
"Overall, Chair Powell continued to stress the high level of uncertainty and need for additional data.. the testimony did little to change the overall policy trajectory," Morgan Stanley said in a note.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 86.04; onshore one-month forward premium at 10.25 paise
** Dollar index down at 97.88 ** Brent crude futures at $67.9 per barrel ** Ten-year U.S. note yield at 4.3%
** As per NSDL data, foreign investors sold a net $211.5mln worth of Indian shares on Jun. 23
** NSDL data shows foreign investors sold a net $5.5mln worth of Indian bonds on June 23
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LONDON, June 25 - The contained move in oil prices during the Israel-Iran war highlights the increasing efficiency of energy markets and fundamental changes to global crude supply, suggesting that Middle East politics will no longer be the dominant force in oil markets they once were. The jump in oil prices following Israel's surprise attack on Iran was meaningful but relatively modest considering the high stakes involved in the conflict between the Middle East rivals. Benchmark Brent crude prices, often considered a gauge for geopolitical risk, rose from below $70 a barrel on June 12, the day before Israel's initial attack, to a peak of $81.40 on June 23 following the United States' strikes on Iranian nuclear facilities. Prices, however, dropped sharply that same day after it became clear Iran's retaliation against Washington – a well-telegraphed attack on a U.S. military base in Qatar that caused limited damage – was essentially an act of de-escalation. 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Iraq's invasion of neighbouring Kuwait in August 1990 caused the price of Brent crude to double to $40 a barrel by mid-October. And the start of the second Gulf war in 2003 led to a 46% surge in prices. While many of these supply disruptions – with the exception of the oil embargo – ended up being brief, markets reacted violently. One, of course, needs to be careful when comparing conflicts because each is unique, but the oil market's response to major disruptions in the Middle East has – in percentage terms, at least – progressively diminished in recent decades. There are multiple potential explanations for this change in the perceived value of the Middle East risk premium. First, markets may simply be more rational than in the past given access to better news, data and technology. Investors have become extremely savvy in keeping tabs on near-live energy market conditions. Using satellite ship tracking and aerial images of oilfields, ports and refineries, traders can monitor oil and gas production and transportation, enabling them to better understand supply and demand balances than was possible in previous decades. In this latest conflict, markets certainly responded rationally. The risk of a supply disruption increased, so prices did as well, but not excessively because there were significant doubts about Iran's actual ability or willingness to disrupt maritime activity over a long period of time. Another explanation for the limited price moves could be that producers in the region – again, rational actors – learned from previous conflicts and responded in kind by building alternative export routes and storage to limit the impact of any disruption in the Gulf. 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Perhaps the most important reason for the world's diminishing concern over Mideast oil supply disruptions is the simple fact that a smaller percentage of the world's energy supplies now comes from the Middle East. In recent decades, oil production has surged in new basins such as the United States, Brazil, Guyana, Canada and even China. OPEC's share of global oil supply declined from over 50% in the 1970s to 37% in 2010 and further to 33% in 2023, according to the International Energy Agency, largely because of surge in shale oil production in the United States, the world's largest energy consumer. To be sure, the global oil market was well supplied going into the latest conflict, further alleviating concerns. Ultimately, therefore, the Israel-Iran war is further evidence that the link between Middle East politics and energy prices has loosened, perhaps permanently. So geopolitical risk may keep rising, but don't expect energy prices to follow suit. The opinions expressed here are those of the author, a columnist for Reuters. Enjoying this column? Check out Reuters Open Interest (ROI),, opens new tabyour essential new source for global financial commentary. ROI delivers thought-provoking, data-driven analysis. Markets are moving faster than ever. ROI, opens new tab can help you keep up. Follow ROI on LinkedIn, opens new tab and X., opens new tab
