The rupee recovered from early losses and ended 14 paise higher at 94.36 (provisional) against the US dollar on Thursday, supported by improved global risk sentiment following a peace agreement between the United States and Iran.
Forex market participants said investor confidence strengthened after the US and Iran electronically signed a memorandum of understanding aimed at ending hostilities and establishing a framework for discussions on Iran’s nuclear programme. Further negotiations between the two sides are scheduled to take place in Geneva on Friday.
Positive sentiment in domestic equity markets also lent support to the Indian currency during the trading session. However, gains in the rupee were limited by the broad-based strength of the US dollar in overseas markets after the US Federal Reserve adopted a hawkish tone while maintaining interest rates.
The Federal Reserve kept benchmark interest rates unchanged, in line with market expectations, but indicated that at least one quarter-percentage-point rate hike could be implemented later this year. In the interbank foreign exchange market, the rupee opened at 94.66 against the greenback and moved within a range of 94.18 to 94.71 during the day. It eventually settled at 94.36 (provisional), registering a gain of 14 paise over its previous close. On Wednesday, the domestic currency had appreciated by 10 paise to finish at 94.50 against the US dollar.
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Meanwhile, the dollar index, which measures the performance of the US currency against a basket of six major currencies, rose 0.51 per cent to 100.59.
Brent crude, the global oil benchmark, declined 2.33 per cent to USD 77.70 per barrel in futures trading, providing additional support to the rupee as lower oil prices help reduce India's import bill.
Forex analysts noted that favourable oil prices and continued foreign capital inflows have improved the near-term outlook for the domestic currency.
“We expect the rupee to trade with a positive bias as global risk appetite improves following the signing of the agreement between the US and Iran. The decline in crude oil prices has also been supportive for the rupee,” said Anuj Choudhary, Research Analyst at Mirae Asset Sharekhan.
He added, however, that concerns remain after US President Donald Trump warned of fresh military action if a comprehensive agreement is not reached. A stronger US dollar and rising US Treasury yields, driven by the Federal Reserve's hawkish stance, could also limit further gains in the rupee.
On the domestic equity front, benchmark indices ended higher, with the Sensex gaining 254.36 points to close at 77,409.98 and the Nifty advancing 82.30 points to settle at 24,168. Foreign institutional investors (FIIs) also remained supportive, turning net buyers and purchasing equities worth Rs 101.59 crore on Wednesday, according to exchange data.
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