Indian Rupee trades flat, lower oil prices back upside

The Indian Rupee (INR) maintained a flat position against the US Dollar (USD) on Thursday, with the USD/INR pair climbing to a near 95.22 level. This occurred after the pair rebounded from the fresh monthly low of 94.83 recorded the previous day. Currently, the MCX Crude Oil contract expiring on August 19 is trading around 1.2% higher, near Rs.

7,200, close to its three-week low of Rs. 7,078 from the prior Wednesday. Analysts predict the Indian currency may resume its upward trend based on a bearish outlook on oil prices, driven by expectations of normalization in navigation through the Strait of Hormuz. This critical chokepoint allows for nearly one-fifth of global energy supply passage.

Rabobank analysts highlight that Brent crude prices have held steady just below the $80 level following Iran's agreement with Oman on a proposed shipping route through the Strait of Hormuz. Although not the Iran-US deal that Trump sought, this deal potentially signals more energy flows resuming through the strategic waterway. Iran's Foreign Ministry spokesperson, Esmaeil Baghaei, stated that Iran and Oman were close to finalizing a framework to manage navigation through the Strait of Hormuz.

A senior Gulf official suggested a 50% chance of reaching an agreement by Friday. However, ongoing attacks by Yemen's Houthis group on Saudi Arabian tankers passing through the Red Sea are expected to maintain energy supply concerns. The RBI left its key Repo Rate unchanged at 5.25% for the fourth consecutive time, citing firm expectations of navigating through the Strait of Hormuz and lower inflation.

For now, the bar for rate hikes appears high unless inflation significantly exceeds expectations, consistent with the bank's baseline view of maintaining the rate unchanged in FY27.