Rupee Finds Breathing Room On Oil Pullback, Soft Dollar; Middle East Risks Linger

The Indian rupee is poised to find respite during Friday's session, aided by dip in oil prices and broad-based dollar weakness, although traders cautioned that Middle East war risks continue to lurk in the background.

The rupee is tipped to open slightly higher at 95.32-95.35 against the U.S. dollar after settling at 95.3875 on Thursday.

The currency has traded in a 94.96-95.60 range so far this week, coming under pressure from renewed exchanges of strikes between the US and Iran, while drawing support from likely intervention by the Reserve Bank of India.

The fresh hostilities have revived volatility in oil prices, with Brent crude swinging between $71 and $80.50 a barrel during the week. Brent was last quoted at $76.34, down about 2% on Thursday after a rally.

Oil moving away from the $80 level is "naturally" good for the rupee," a trader at a private sector bank said. India imports most of its requirement of the critical commodity.

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However, with the fighting continuing, nervousness around the rupee's path will persist and the question is whether the conflict "becomes worse" over the weekend, he said.

The near-term outlook appears tied largely to developments in the Middle East and their impact on crude oil prices, bankers said.

Iranian armed forces launched attacks on US military infrastructure in Gulf states on Thursday in response to US strikes on Iran's southern coastal and eastern provinces, a move that further strained a three-week-old ceasefire.

The latest escalation in US-Iran military tensions raises fresh risks for the oil market, ING Bank said in a note.

Meanwhile, the dollar weakened against major peers as well as Asian currencies. A decline in US Treasury yields from recent highs, coupled with resilience in risk-sensitive assets, reduced demand for the dollar.