Rupee set to rally as crude dives on Israel-Iran de-escalation
MUMBAI, June 24 (Reuters) - The Indian rupee is poised to climb at open on Tuesday as the plunge in crude oil on fading Middle East geopolitical risks improves the outlook for the South Asian nation's trade balance and assets.
The 1-month non-deliverable forward indicated an open in the 86.10 to 86.15 range, versus 86.75 in the previous session.
Brent prices fell 2% in Asia after U.S. President Donald Trump said Iran and Israel had agreed to a ceasefire. Brent had already slid 7% on Monday when Iran made a token retaliation against a U.S. base.
"With Trump having lent a hand in brokering a peaceful resolution, the prospect of a prolonged conflict with U.S. involvement has been re-priced," clearing the way to add risk, Chris Weston, head of research at broker Pepperstone, said.
U.S. equities rose Monday and futures indicated a further rally. The dollar index softened and Asian equities and currencies advanced.
"It is expected that the big opening dip (on USD/INR) will run into buy orders. I do not think 86 will be taken out, though I reckon that positions are on the lighter side and interbank will be on the hunt to put in shorts," a currency trader at a Mumbai-based bank said.
Brent crude is now trading below $70 a barrel — near levels seen before Israel's first strike on Iran. The rupee was at 85.60 prior to that escalation.
There is "definitely" more room for the rupee to rally, a treasury official at a bank said. It's just that large drops on USD/INR tend to "struggle to hold on".
Meanwhile, Federal Reserve vice-chair Michelle Bowman said the first interest rate cut this year could come as soon as July, further undermining the dollar and boosting risk.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 86.25-86.30; onshore one-month forward premium at 10.25 paise
** Dollar index down at 98.17
** Brent crude futures down 2.1% at $69.88 per barrel
** Ten-year U.S. note yield at 4.35%
** As per NSDL data, foreign investors bought a net $1,093.6 mln worth of Indian shares on June 22
** NSDL data shows foreign investors sold a net $18.8 mln worth of Indian bonds on June 22
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