The Indian rupee had a muted Wednesday, with traders keeping an eye on gyrations in oil prices alongside signs of the central bank's presence in the spot and forward market to support the beleaguered currency.
The rupee closed at 95.69 per dollar, barely changed from its close at 95.68 in the previous session.
While the currency threatened to fall past 95.80 earlier in the session, dollar sales from state-run banks averted the move, four traders said.
Concurrently, state-run banks were spotted conducting dollar-rupee buy/sell swaps, which cooled forward premiums, they added.
India's central bank has likely been rolling over maturities of forwards to tenors of more than one year via swaps over the last few days, a trader at a private bank said.
The 2-year dollar-rupee forward premium was last down 9 paisa at 5.83 rupees.
Meanwhile, a slump in crude oil prices gave the rupee some breathing room as well.
Brent was down more than 3% at $96.5 per barrel as traders sought clarity on negotiations between Iran and the U.S. after renewed hostilities set back efforts to end the war and reopen the Strait of Hormuz.
The three-month-old conflict has hit oil-importing Asian economies especially hard, with the Indian rupee, Indonesian rupiah and Philippine peso becoming regional laggards.
Higher oil prices present both inflation and growth risks to these economies.
"We forecast a further 100bp of hikes in Philippines, and 50bp each in Indonesia and India, given high imported energy needs, fiscal policy concerns, current account deficits, and relatively high FX sensitivity," analysts at Goldman Sachs said in a note.
Philippines is considering an off-cycle rate hike while the Reserve Bank of India is slated to announce its policy decision on June 5.
India's financial markets will be closed on Thursday.
