Rupee Posts 0.83% We‌ekly Gain, It‌‌s Strongest in 11 Weeks, on Bon‌‌d Inf‌‌lows and Cru‌‌de Collapse

Mumbai, June 21: The Indian rupee recorded its best weekly performance in eleven weeks, appreciating by 0.83% against the US dollar owing to the collapse in crude oil prices, robust foreign bond inflows, and the US-Iran Peace Agreement.

The currency strengthened from around 95.10 per dollar at the start of the week to close at 94.32-94.34 per dollar on Friday. The rise was the fourth weekly gain in the last five weeks, with the rupee touching a six-week intra-day high of 94.20 on Friday before surrendering gains.

However, the rebound in the dollar index, hawkish signals by the US Federal Reserve and index rebalancing outflows capped further appreciation.

US-Iran Peace Deal Fuels Monday Rally, Rupee Opens at 94.70

The trading week started on a strong note after market‌s reacted to the peace agreement between the United States and Iran. The Pakistan Prime Minister Shehbaz Sharif revealed that Washington and Tehran have successfully reached a end their 107-day war and reopen the Strait of Hormuz.

President Trump confirmed the agreement, stating that the Stra‌‌it would remain open and the US naval blockade would be lifted. The rupee started at 94.70 per dollar on Monday, 15 June, while the closing rate was 94.71, gaining 47 paise compared to the previous close.

This rally was a result of a significant drop in prices of Brent oil, which dropped by 4.97 percent to $82.99 per bbl, and a surge in domestic stocks where the Sen‌‌se‌‌x index soared 1,126 points to 76,654.

Analysts no‌‌t‌‌ed that the drop in oil prices would considerably improve India’s cur‌rent account deficit for the fiscal year 2027.

Rupee Extends Gains to Third Session on Tuesday as Crude Falls Below $80

On Tuesday, 16 June, the rupee opened at 94.69 and closed at 94.53, gaining another 5 paise and marking its third consecutive session of gains. Brent crude extended its decline, trading down 1.68% at $81.77 per barrel, while the dollar index softened to 99.61.

The rupee had gained 132 paise over the past three trading sessions, supported by easing West Asia tensions and foreign institutional investor buying, with FIIs turning net buyers with a ₹200 crore net purchase. US Vice President JD Vance was announced to lead the

US delegation for the in-person signing of the peace deal with Iran in Switzerland on Friday. Analysts expected the rupee to trade with a positive bias, with USD/INR expected in the 94.10–94.90 range.

Rupee Hits Six-Week High of 94.29 on Wednesday as Brent Slips Below $80

Wednesday, 17 June, marked a significant milestone as the rupee touched a six-week intraday high of 94.29 per dollar, before settling at 94.50, up 10 paise. Brent crude slipped below $80 per barrel for the first time in nearly three months, providing substantial support to the currency.

The dollar index eased to around 99.50, further aiding the rupee’s ascent. However, the Reserve Bank of India intervened through dollar purchases during the day, estimated at around $2 billion–$3 billion, which weighed on the local currency and capped gains.

Dealers noted that the RBI was using the rupee’s strength to rebuild foreign exchange reserves and manage its large short dollar forward position, estimated at around $110 billion. Analysts observed that the rupee outperformed its Asian peers as crude oil prices continued to soften.

Thursday’s Dramatic Recovery: Rupee Erases Fed-Driven Losses on Peace Deal

Thursday, 18 June, witnessed a dramatic session as the rupee initially snapped its four-day winning streak following a hawkish surprise from the US Federal Reserve. The Fed, in its first policy meeting under Chair Kevin Warsh, voted unanimously to keep rates steady at 3.50% to 3.75%.

However, the dot plot revealed that 9 of 18 officials pencilled in at least one rate hike in 2026, with 3 members projecting one 25-basis-point hike and 6 projecting 50 basis points of hikes. The hawkish tilt boosted the dollar and pushed the rupee lower at the open. However, the rupee pared all losses and settled at 94.36–94.40, up 10–14 paise, after President Trump and Iranian President Pezeshkian electronically signed the Memorandum of Understanding.

The agreement aimed at ending hostilities and creating a framework for negotiations on Iran’s nuclear program. Brent crude fell 2.33% to $77.70 per barrel, while positive domestic equities – with the Sensex advancing 254 points to 77,409 – further supported the rupee.

Friday’s Choppy Session: Rupee Touches 94.20, Settles at 94.32

Friday, 19 June, brought a mix of optimism and uncertainty. The rupee opened at 94.30–94.35 and touched an intraday high of 94.20 – a six-week high – as optimism surrounding India-US trade negotiations gained momentum.

Foreign Secretary Vikram Misri confirmed that the India-US interim bilateral trade agreement was in its “final stages,” with US Trade Representative Jamieson Greer scheduled to visit India next week to take forward discussions. Prime Minister Modi and President Trump, meeting on the margins of the G7 Summit in Evian, instructed officials to work towards a balanced, mutually beneficial trade agreement at the earliest.

However, the rupee surrendered most of its gains later in the session as the dollar index firmed to 100.76–100.92, uncertainty over the US-Iran peace deal emerged after Vice President JD Vance cancelled his planned trip to Switzerland, and index-rebalancing outflows hit the currency. The rupee settled at 94.32–94.34, up 6–7 paise for the day.

RBI Steps Up Dollar Buying to Rebuild Reserves Amid Rupee Strength

The Reserve Bank of India played a crucial behind-the-scenes role throughout the week, actively purchasing dollars to rebuild foreign exchange reserves and manage its large short dollar forward position.

Market participants estimated the RBI’s dollar purchases at around $1 billion–$2 billion on Thursday, after the central bank absorbed $2 billion–$3 billion from the market on Wednesday. India’s foreign exchange reserves stood at $681.6 billion as of 6 June, down by nearly $47 billion from the record high of approximately $728.5 billion touched in the last week of February.

The central bank’s net short forward book stood at $95.3 billion at the end of April. Dealers noted that the RBI was using the opportunity of favourable market conditions to replenish reserves, which naturally slowed the pace of rupee appreciation. The rupee has appreciated 0.7% this month and 0.5% so far in the April-June quarter.

Key Drivers: Crude Collapse, Bond Inflows, and Trade Deal Optimism

The rupee’s weekly rally was driven by a confluence of positive factors. The US-Iran peace agreement and reopening of the Strait of Hormuz triggered a collapse in crude oil prices, with Brent falling from approximately $120 per barrel during the conflict to below $80.

Since India imports more than 85% of its crude oil needs, lower oil prices substantially reduced concerns over the country’s import bill and current account deficit. Robust foreign inflows into Indian government securities provided additional support.

The Reserve Bank of India’s dollar-attracting measures announced two weeks prior – including subsidising hedging costs for fresh FCNR(B) deposits and providing concessional swap facilities – continued to bear fruit.

Analysts estimated these measures could attract up to $60-70 billion in foreign capital. Optimism surrounding a potential India-US trade agreement, following the Modi-Trump meeting at the G7 Summit, further boosted sentiment.

Hawkish Fed and Dollar Strength Cap Rupee’s Upside

Despite the strong weekly performance, the rupee faced significant headwinds. The Federal Reserve’s hawkish dot plot, with 9 of 18 officials expecting at least one rate hike in 2026, drove the dollar index to a one-year high.

The dollar index firmed to 100.76–100.92 by the end of the week. Uncertainty over the US-Iran peace process, with Vice President JD Vance cancelling his planned trip to Switzerland, added to volatility.

Corporate and importer demand for dollars, along with index-rebalancing outflows, also weighed on the currency. Analysts noted that while the rupee’s bias had turned positive, sustained appreciation would depend on continued foreign inflows, stable crude prices, and the Federal Reserve’s policy trajectory.

The rupee’s weekly rally highlighted the positive impact of easing geopolitical tensions and lower crude prices on India’s external position. Improved sentiment following the US-Iran peace deal, strong bond inflows, and RBI support measures aided the currency. However, a hawkish Federal Reserve and stronger dollar remain challenges. Investors should track Fed signals, crude prices, and Middle East developments.

Source

https://rbi.org.in/