The Indian rupee rose against the U.S. dollar for a second straight session on Monday, as oil prices plunged following the U.S.-Iran preliminary agreement to end their conflict and reopen the crucial Strait of Hormuz.
The announcement added to the strength that the currency built after the Reserve Bank of India's measures to attract dollars into the economy on June 5, when the central bank did not move on rates or change its "neutral" stance.
On Monday, the local currency ended 0.4% higher at 94.71 against the previous session's 95.11 close. During the day's session, the rupee touched 94.4625, its highest level in five weeks.
The currency's year-to-date decline has narrowed to 5.6%. It struck a record low of nearly 97 per dollar last month.
The currency may be entering a more supportive near-term phase with lower oil prices, and as the central bank's steps will start attracting dollar inflows, traders said.
"The news of war ending is a positive development for the currency, but we may not see a one-way rally and the currency could move towards 93.25 in the near term," said Victor Roy, head of treasury at CTBC Bank.
The benchmark Brent crude dropped more than 5% to around $83 per barrel on Monday, a positive for India, which imports nearly 90% of its oil requirements.
Economists have upgraded their forecasts for India's balance of payments after the RBI's measures, with most now expecting a small surplus, compared with earlier projections of a large deficit.
The extent of the rupee's rally will depend on the comfort of the central bank, which may be keen to use the strength to pare its large FX forward book, they added.
The RBI's short dollar positions in the FX market ballooned to a record high of $104 billion in March, highlighting its efforts to defend the rupee.
