Rupee Recovers from Three-Day Slide, Opens at ₹86.64/$ Amid Oil Price Relief

The Indian rupee ended a three-day slide on June 20, 2025, opening 9 paise higher at ₹86.64 against the US dollar after closing at ₹86.73 the previous day. This uptick comes on the heels of a turbulent week for the currency, which had fallen to a three-month low of ₹86.90 during Thursday’s session-marking a monthly decline of 1.19%. The rupee’s performance this week is on track to be its worst in one and a half months, down 0.75% through Thursday.

Catalysts for the Recovery

The rupee’s rebound was supported by a combination of factors. Brent crude oil prices, which had increased close to $77.23 per barrel due to escalating tensions between Iran and Israel, retreated by 2% as US President Donald Trump signalled a two-week delay in America’s response to Iran. This cooling of oil prices and a softer US dollar index, which dipped 0.31% to 98.59, provided much-needed relief to the domestic currency.

Market analysts noted that the rupee’s gains were also influenced by the Reserve Bank of India’s (RBI) presence in the forex market. State-run banks, acting on behalf of the central bank, reportedly sold dollars at key levels to prevent excessive volatility and mitigate imported inflation risks.

Geopolitical Uncertainty and Market Sentiment

Despite the respite, uncertainty around the Iran-Israel conflict continues to cloud the outlook for the rupee and other emerging market currencies. The White House has indicated that Trump still considers negotiations with Iran an option and will decide on supporting Israel within two weeks, leaving investors in a state of flux. Meanwhile, Israel has claimed to have destroyed nearly half of Iran’s missile launchers, further complicating the geopolitical landscape.

Traders and investors remain cautious, with export-oriented businesses taking advantage of the rupee’s weakness to sell dollars at favourable rates. Importers, on the other hand, are advised to wait before hedging their positions, as the currency could strengthen further if tensions ease.

Economic Implications and Outlook

A sustained rise in crude oil prices poses significant risks for India’s economy, given the country’s heavy reliance on imported energy. Economists estimate that a $10 increase in oil prices could widen India’s current account deficit by as much as 0.4% of GDP. The rupee’s recent weakness has already led to higher import costs and put pressure on government bond yields.

However, the RBI’s calibrated intervention and the recent pullback in oil prices have helped stabilise the currency. Market participants expect the rupee to trade within a range of ₹86.35–₹86.95 in the near term, with the potential for further gains if geopolitical tensions subside and oil prices remain subdued.

Domestic Equity Markets Show Resilience

While the rupee has faced headwinds, domestic equity markets have demonstrated resilience. The BSE Sensex climbed 289.43 points to 81,651.30, and the Nifty rose 88.25 points to 24,881.50 in early trade on June 20. Foreign portfolio investors (FPIs) have been net buyers of Indian equities over the past three days, although selling pressure has been more pronounced in mid- and small-cap stocks.

Conclusion: A Fragile Recovery Amid Lingering Risks

The rupee’s rebound on June 20 marks a temporary pause in its recent downtrend, driven by a retreat in global oil prices and a softer US dollar. However, the currency remains vulnerable to renewed volatility as long as geopolitical tensions in the Middle East persist. The RBI’s proactive stance and India’s robust macroeconomic fundamentals provide a measure of stability, but the outlook for the rupee will continue to hinge on developments in global energy markets and the trajectory of the Iran-Israel conflict.

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