Rupee Hits Five-Week High After Oil Plunges; Traders Eye Further Rally

The Indian rupee rose to a five-week high against the U.S. dollar on Monday, gaining for a second session. Oil prices collapsed after the U.S. and Iran reached a preliminary agreement to end their conflict and reopen the Strait of Hormuz. The rupee closed at 83.45 per dollar, down from 83.80 on Friday, according to Bloomberg data.

India imports roughly 80% of its crude oil, making the currency acutely sensitive to energy costs. A sudden drop in oil prices cuts the nation's import bill directly. That reduces pressure on the current-account deficit and eases the case for aggressive RBI intervention. The central bank has been selling dollars in recent weeks to support the rupee. Monday's move allowed it to step back, traders said.

Lower oil also tempers inflation expectations in India, which gives the Reserve Bank of India more room to hold rates steady or even consider cuts later in the year. That contrast matters against a Federal Reserve still signaling higher-for-longer rates. The dollar index slipped 0.3% on the day, adding to the rupee's tailwind.

The transmission through other markets was predictable. Asian currencies broadly firmed, with the Indonesian rupiah and Philippine peso both up. India's 10-year bond yield dipped 4 basis points to 7.12% as the oil-driven inflation relief lifted sovereign bonds. Equity markets took the news well, with the Nifty 50 closing up 0.6%, led by oil-marketing and airline stocks.