The rupee weakened by 7 paise to settle at 95.83 against the US dollar on Thursday, with geopolitical tensions between the United States and Iran keeping investor sentiment cautious and driving demand for safe-haven assets.
Forex traders said the prolonged crisis in West Asia remains a key concern for India because of its heavy dependence on imported energy supplies.
At the interbank foreign exchange market, the local unit opened at 95.70, touched an intraday high of 95.59 and a low of 95.85, before ending at 95.83. On Wednesday, it had closed at 95.76 after losing 40 paise.
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Market participants are now focused on the Reserve Bank of India’s Monetary Policy Committee meeting, which began its three-day deliberations on Wednesday and is scheduled to announce its decision on June 5.
The six-member panel is headed by RBI Governor Sanjay Malhotra.
Analysts expect the central bank to keep the key policy rate unchanged at 5.25 per cent as policymakers weigh the impact of the West Asia conflict on inflation and growth.
News Alert ! Rupee falls 35 paise to close at 95.71 (provisional) against US dollar.
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The market's weather vane points west
Commenting on the currency outlook, Anuj Choudhary, research analyst at Mirae Asset ShareKhan, said geopolitical tensions and firm US Treasury yields are expected to keep pressure on the rupee.
He added that elevated crude oil prices remain a concern and that any recovery in the dollar could further weaken the domestic currency. Choudhary also said positive developments in US-Iran peace efforts could help limit further losses.
In the same note, he said traders would watch US weekly unemployment claims data, the non-farm payrolls report and the RBI’s policy decision for fresh cues.
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Not all the market's cards tell one tale
Other market indicators were mixed.
The dollar index, which tracks the US currency against a basket of six major currencies, was down 0.21 per cent at 99.31, while Brent crude traded at USD 95.81 per barrel, down 2.04 per cent in futures trade.
In the equity market, the Sensex rose 13.84 points to close at 74,360.01 and the Nifty gained 10.95 points to end at 23,416.55.
Exchange data showed foreign institutional investors sold equities worth Rs 5,616.56 crore on a net basis on Wednesday.
