The rupee ended at 86.4775 against the U.S. dollar, down nearly 0.3% from its close of 86.24 in the previous session.
The currency slipped past 86.50, a closely watched psychological support level, to hit its weakest level in over two months before slightly paring losses.
Traders pointed to dollar bids from local corporates, including oil companies, and speculative interest on wagering against the local currency among factors that hurt the rupee.
Oil prices remained elevated – albeit cooling off the highs hit on Tuesday – as markets weighed the chance of supply disruptions from the Iran-Israel conflict. Brent crude oil futures were last quoted at $75.5 per barrel.
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The tepid risk sentiment also weighed on Asian equity markets with India’s benchmark equity indexes, the BSE Sensex and Nifty 50, logging a fall of about 0.2% each. Meanwhile, the dollar-rupee forward premiums nudged higher. The 1-month forward premium rose to 10 paisa, with traders citing paying interest spurred by arbitrage between non-deliverable and onshore forwards. The 1-year dollar-rupee implied yield also ticked up to 1.83%.
Price action on the dollar-rupee pair is “cementing the upward bias,” a trader at a foreign bank said, adding that further escalations in the Iran-Israel conflict could push it closer to 87.
Later in the day, the focus will be on the U.S. Federal Reserve’s policy decision.
The central bank is widely expected to keep rates unchanged with updates to its future economic projections and remarks from Chair Jerome Powell keenly awaited by market participants.
“The Fed will likely consider any oil price shock as much a threat to growth as to inflation,” DBS Bank said in a note.
