Indian rupee finds its footing as oil worries cool, traders watch flow momentum

Mumbai witnessed the Indian rupee reach its strongest level in two weeks on Thursday, as oil prices dropped below $100 per barrel. This came after Republicans lost control of the US Congress, reducing concerns about a potential escalation in the Iran war. The decline in oil prices bolstered Indian stocks, which hit their best performance in seven months.

Simultaneously, bond yields fell to their lowest in over a month due to reduced concerns about the economic consequences of high energy prices for India, the third-largest oil importer in the world. The Indian rupee showed a modest 0.2% gain, settling at 94.4750 against the US dollar, mirroring gains in many Asian currencies. Traders also noted a decrease in dollar-rupee forward premiums, indicating increased confidence in a global recovery.

The MSCI gauge of global equities managed a slight increase, with profits distributed across markets expected to benefit from lower energy costs and those dealing with stricter AI regulation. However, South Korean stocks, seen as a benchmark for AI sentiment, saw a decline of more than 5%. Market analysts at DBS cautioned that the resilience of the relief rally depends on the US policy outlook, especially decisions related to the West Asia crisis, fiscal and debt management, and AI-related investment policies.

As of Wednesday, foreign investors bought stocks worth $769.65 million, marking one of the largest single-day purchases in India since October 2025. This total stands at $1.57 billion for the month. A consistent rise in foreign inflows into Indian stocks would be crucial for strengthening the rupee. A senior trader at a Singapore-based hedge fund suggested that the central bank could let some of its existing dollar sales in the non-deliverable forward market mature without adding pressure on the currency, should foreign investments show a durable improvement.