The Indian rupee firmed slightly on Tuesday as hopes of diplomacy between the U.S. and Iran pulled the brakes on an oil rally that had driven the currency to a two-month low.
Traders are also paying close attention to the scale of inflows that India's capital flow measures would attract over a period to bolster India's FX kitty that is used to defend the rupee.
On Tuesday, the Indian currency rose 0.2% to 96.2350 against the U.S. dollar.
Oil prices declined by over 1% before turning higher again as markets weighed reports of mediation efforts between the U.S. and Iran against an exchange of fresh attacks between the two and threats of a naval blockade of Saudi Arabia by Yemen's Houthis.
Better-than-expected inflows from the Reserve Bank of India's measures also helped market sentiment.
In its first update since the scheme was launched in early June, the RBI said its measures had mobilised $20.72 billion between June 8 and July 17.
Analysts at Nomura said they stick with their estimate of $55 billion of inflows from a scheme to attract overseas deposits from non-resident Indians, with the flows accelerating in August and September.
Market participants will focus on how the central bank uses its reserves to defend the rupee.
The markets' uncertainty over the central bank's intentions stems from a divergence of views in the bank over the extent of intervention needed to manage the currency, Reuters reported, citing three sources familiar with the central bank's discussions.
The RBI did not respond to an email seeking comment.
Asian currencies were mostly rangebound while global stocks pushed higher with focus on earnings from companies including Alphabet and Intel to gauge whether the AI trade has more room to run.
