Rupee strengthens on hopes of India-US trade deal, crude prices fall

The rupee rose to 85.19 against the US dollar as hopes of a trade deal between India and the US grew, while falling crude oil prices also supported the currency's gains

The rupee strengthened sharply on Wednesday, rising to a high of 85.19 against the US dollar, as hopes grew that India and the US could finalise a trade deal in the next 48 hours, said dealers. The rally started early in the day with foreign banks selling dollars, as many traders were already betting on a stronger rupee. However, state-owned banks bought dollars on behalf of the Reserve Bank of India after the initial gains, which capped further increases.

 

The rupee settled at 85.31 per dollar, against the previous close of 85.71 per dollar.

 

Market participants said that once the rupee breached the 85.45 per dollar mark, stop-losses were triggered, pushing the currency even higher. Foreign portfolio investors (FPIs) were also buyers, adding to the rupee’s gains, they said.

 

 

“RBI may have stepped in to buy dollars, which pulled the rupee back. The market remained heavily tilted in favour of the rupee, supported by trade deal hopes and falling crude oil prices,” said a market participant. 

 

US President Donald Trump has announced a trade agreement with Vietnam that reduces US tariffs on several Vietnamese goods to 20 per cent, down from the previously proposed 46 per cent. The development has raised hopes that other countries, including India, may also be able to secure trade deals with Washington ahead of the 9 July deadline, when Trump’s 90-day pause on "reciprocal tariffs" is set to expire.

 

The dollar index fell to 96.82 in Asian trade, against 97.05 on Wednesday. It measures the strength of the greenback against a basket of six major currencies. Additionally, Brent crude prices fell to around $68.50 per barrel from above $69 per barrel, reversing the 3 per cent gains seen overnight.

 

In the past few days, the rupee was stuck in a range of 85.40 per dollar to 86.00 per dollar. With the recent gains, it has now moved to 85.31. Going forward, 85.50 is expected to act as a strong resistance level, said market participants. 

 

“The optimism around the trade deal is pushing the rupee higher, but if it does not happen, the rupee might breach the 86 per dollar mark,” said a dealer at a state-owned bank.

 

The local currency recovered against the US dollar on Thursday, posting a 0.35 per cent gain for the calendar year so far and a 0.18 per cent appreciation in the current financial year.