INDIA RUPEE-Rupee rises as Asian markets catch a breather, importers keen to hedge

By Jaspreet Kalra

MUMBAI, March 10 (Reuters) - The Indian rupee strengthened on Tuesday as a sharp retreat in crude oil prices sparked a wave of relief among energy importer economies in Asia, even as market participants remained circumspect about the durability of the lower energy prices as the Iran war continues.

While the rupee INR=IN fleetingly rose above 92 per dollar in opening trades, it tempered gains on the back of dollar demand from local corporates, traders said.

The currency was last up 0.15% at 92.18, still close to its all-time low of 92.3475 hit in the previous session.

MSCI's gauge of Asia Pacific stocks .MIAP00000PUS rose more than 2% after U.S. President Donald Trump declared the Middle East war could be "over soon."

This sent oil prices back below $100 per barrel, highlighting remarkable volatility in energy markets. Brent crude oil futures had climbed to nearly $120 per barrel on Monday. The cooling oil prices also lifted Indian equities and bonds with the Nifty 50 .NSEI up 0.5% and the yield on the 10-year benchmark easing 3 bps.

Traders, though, remain unsure of how long the lower oil prices may last.

Iran's Revolutionary Guards said on Tuesday they would not allow "one litre of oil" to be shipped from the Middle East if U.S. and Israeli attacks continue. In addition to predicting a swift end to the war, Trump also said the U.S. would hit Iran much harder if it blocks exports from the region.

Amidst this uncertainty, importers continue to lap up dollars as "it (USD/INR) can rise anytime again," a trader at a Mumbai based bank said.

Analysts sound cautious over the road ahead as well and reckon that more concrete developments would be needed to unwind the risk aversion in markets completely.

"That Trump has backed down to some extent is certainly good for the global economy and reduces the left tail risk of a global recession, but we may not be out of the woods yet," Michael Wan, senior currency analyst at MUFG said in a note.