Key facts
- The Indian rupee reached a five-week high against the US dollar.
- Falling oil prices, attributed to hopes of a West Asian peace deal, contributed to the rupee's strength.
- The rupee closed 40 paise higher at 94.71 against the dollar.
- Benchmark 10-year bond yields fell to their lowest level since mid-April.
- Traders are optimistic about the rupee due to improved sentiment and expected dollar inflows.
The Indian rupee surged to a five-week peak against the US dollar on Monday, buoyed by a significant drop in oil prices following news of an initial peace deal in West Asia. This easing of pressure on India's substantial oil import costs, coupled with central bank measures to attract foreign currency, led to improved market sentiment.
The rupee, which imports four-fifths of its oil needs, saw its financial assets benefit from the slump in crude prices. The currency opened the day at 94.68 a dollar, a gap of 43 paise from its previous close of 95.11, and rallied intraday to a high of 94.45 before eventually closing 40 paise higher at 94.71.
Yields on the benchmark 10-year bond also retreated, hovering around their lowest level since mid-April at approximately 6.83% intraday before ending marginally higher at 6.87%. These yields have consistently trended below 7% since early June.
Traders have expressed a bullish outlook on the rupee, anticipating substantial dollar inflows through foreign currency non-resident bank accounts. Veteran foreign currency consultant KN Dey expects the rupee to trade within the range of 92.75 to 94.20 by December 2026, taking into account current market conditions and the Reserve Bank of India's new policies aimed at boosting foreign currency inflows. Kotak Securities head of commodity and currency research Anindya Banerjee anticipates the local unit to gain to around 93/93.50 a dollar by September.