Indian Rupee rebounds as oil prices slide on US-Iran deal hopes

The Indian Rupee recovered from early losses and turned positive against the US Dollar during Thursday’s afternoon trading session in India, supported by a sharp decline in oil prices and renewed optimism surrounding possible progress in US-Iran negotiations.

The USD/INR pair slipped to near 94.34 as crude oil prices came under heavy selling pressure following reports suggesting a possible breakthrough regarding the reopening of the Strait of Hormuz, a key shipping route that handles nearly 20% of global energy supply.

Oil prices decline on possible US-Iran breakthrough

The Indian Rupee attracted strong buying interest after oil prices extended losses during the session.

At the time of writing, WTI crude oil prices were trading nearly 3% lower around the $90 mark.

During European trading hours, Al-Hadath, a sister channel of Al Arabiya, reported on X that intense communications between the United States and Iran are underway regarding the gradual reopening of the Strait of Hormuz.

According to the report, there could be a “breakthrough in US-Iran peace talks in coming hours for ships stranded in the Strait”.

The decline in oil prices supported the Indian currency as economies such as India, which depend heavily on crude oil imports to meet domestic energy demand, generally benefit from lower energy prices.

Market sentiment had already improved after comments from US President Donald Trump on Wednesday regarding talks with Iran.

“They want to make a deal. We've had very good talks over the last 24 hours, and it's very possible that we'll make a deal up there,” Trump said, as reported by BBC.

“I think we won,” he added.

FIIs remain cautious despite improved risk sentiment

Despite improving global risk sentiment linked to optimism over a potential US-Iran peace agreement, Foreign Institutional Investors (FIIs) continued reducing exposure to Indian equities.

So far in May, FIIs have remained net sellers in two out of the three trading sessions and have offloaded equities worth Rs. 6,620.86 crore.

Investor sentiment toward Indian markets has remained under pressure due to concerns over the country’s growth and inflation outlook.

Market participants remain cautious that energy prices could stay elevated for a prolonged period even if the United States and Iran eventually reach a peace agreement.

The persistent uncertainty over inflationary pressures and economic growth has continued to weigh on foreign investment flows into Indian markets.

US Dollar weakens ahead of payrolls data

The US Dollar also faced pressure during the session following positive developments in US-Iran negotiations.

The US Dollar Index (DXY), which measures the Greenback against six major currencies, traded 0.12% lower around 97.90 at the time of writing.

The index remained close to its more than two-month low of 97.62 recorded on Wednesday.

Investors are now closely monitoring the upcoming US Nonfarm Payrolls (NFP) data for April, scheduled for release on Friday, for further clarity on the Federal Reserve’s monetary policy outlook.

The employment report is expected to show that the US economy added around 60,000 jobs during the month.