Oil pullback reinforces consensus dollar-weakness view, emboldens rupee bulls
By Nimesh Vora and Jaspreet Kalra
MUMBAI (Reuters) - A sharp oil price retreat after the Iran-Israel ceasefire has eased a key threat to the consensus dollar-weakness view, brightening the Indian rupee's outlook after two weeks of heightened geopolitical risk.
Brent crude oil prices fell nearly 3% in Asia after U.S. President Donald Trump said Iran and Israel had agreed to a ceasefire, extending their 7% slump on Monday to trade at $69.3 per barrel at 11:20 a.m. IST.
The retreat lifted Asian currencies and weighed on the dollar as markets reversed risk-off trades spurred by the 12-day war between the regional rivals.
On the day, the rupee rose 0.6% to 86.22, boosted by broad-based interbank dollar sales, traders said.
The dollar index, meanwhile, retreated 0.6% on Monday and was a tad lower in Asia trading at 98.1.
The index is down over 9% on the year so far, battered by concerns about uncertain U.S. tariff policies and a rush to hedge against weakness that could potentially erode the value of overseas holdings of U.S. assets.
WEAK DOLLAR VIEW
Morgan Stanley said last week that USD weakness remains their base case, but a sustained rise in oil prices presents a key risk to the view.
With oil prices now trading at nearly the same level they were at before the Iran-Israel conflict started, that risk appears to be fading.
"We maintain a negative bias on the USD, albeit with a much slower pace of decline than seen earlier this year, with little changing in the way of U.S. policy uncertainty or data momentum to affect a shift in our view of a weaker USD over time," ANZ said in a Tuesday note.
Asian currencies were up between 0.1% and 1.4% on the day while regional equities also leapt higher.
India's benchmark equity index, the Nifty 50, rose 1% while the country's 10-year benchmark bond traded in the green.
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