Indian rupee hits three-week low, traders wary about fall to 96/USD as RBI stands guard

Mumbai witnessed the Indian rupee reaching its lowest level in three weeks on Wednesday. The decline was attributed to rising oil prices and steady demand for the US dollar from businesses. However, the central bank's interventions seemed to prevent the currency from sliding further. The Asian currency closed at 95.7525 per dollar, a slight improvement from the previous session's 95.68.

The Reserve Bank of India's (RBI) repeated market interventions over the past 10 days have made traders hesitant to bet on a further decline in the rupee, as it approaches the psychologically significant level of 96 per dollar. A trader at a private bank revealed that the RBI actively participated in the market most of the day, through state-run banks.

The trader noted that with the 95.75 level being broken, some exporters are selling in anticipation that this range could be a near-term peak for the USD/INR pair. The primary factor undermining the rupee remains the persistent rise in crude prices. Brent crude oil futures surged nearly to $92 per barrel, marking a 3% increase this week.

U.S. President Donald Trump reiterated on Tuesday that no negotiations were ongoing with Iran, and he affirmed that the Strait of Hormuz remained open to shipping, contradicting Iran's claim that the vital waterway was closed. Asian currencies generally strengthened due to a broadly weaker greenback, pushing the dollar index down 0.2% to 99.4.

The focus of investors is now on the Reserve Bank of India's and the Federal Reserve's latest policy reviews, set to be released. Although there might be a few hawkish references in tonight's minutes, these are not anticipated to significantly push the dollar and short-dated rates higher. Analysts at ING stated that they do not view the minutes as a game changer.

Market expectations are set at 37 basis points of Fed hikes over the next 12 months and 57 basis points by the RBI.