The Indian rupee ended nearly flat on Friday but declined from a week earlier as renewed hostilities in the Middle East made investors cautious about exposure to oil-sensitive currencies and sparked a modest pickup in importer hedging.
Global stocks rose on the back of AI-related enthusiasm in Asia over the U.S. market debut of South Korean chip bellwether SK Hynix. Regional currencies gained with the Japanese yen lifted by news of plans to encourage pension funds to increase their holdings of domestic financial assets.
The rupee ended at 95.3250 per dollar, little changed from its close in the previous session and fell 0.1% on the week.
Crude prices jumped earlier this week after U.S. President Donald Trump said that the interim agreement to end the war with Iran was "over", but have since cooled off to trade at $75.8 per barrel.
Investors have brushed off the tensions for now but the fragility of the ceasefire has renewed caution on the outlook for energy prices and global inflation.
"The fragile truce in West Asia leaves energy markets vulnerable to renewed volatility and higher crude oil prices," ANZ said in a note.
Investor focus next week will be on consumer inflation prints in India and the U.S.
ANZ expects India's retail inflation to rise to 4.3% year-on-year, in line with forecasts of economists polled by Reuters. "We will also be monitoring whether recent input cost pressures begin to pass through to core inflation, signalling potential second-round effects," ANZ said.
For the rupee, merchant dollar demand will be a key driver. Analysts expect importers to hedge aggressively while exporters may stick to an opportunistic approach when locking in foreign exchange protections.
