The Indian rupee closed nearly unchanged on Tuesday after hitting a two-month low earlier in the session as crude oil prices continued to dictate the currency's momentum while likely central bank intervention limited weakness.
The rupee had declined 0.2% to 96.1475 in early trading but trimmed losses to close nearly flat at 95.98 as Brent oil prices turned lower on the day, after touching a peak of nearly $108 per barrel.
India imports nearly 90% of its crude requirements, making the rupee one of the world's most vulnerable currencies to the Middle East oil shock.
Dollar sales by state-run banks, most likely on behalf of the Reserve Bank of India, helped limit the local currency's fall early in the day and sentiment improved when crude prices cooled, traders said.
The focus is squarely on oil and a break below $100 per barrel would take the rupee to 95.40-50 per dollar while current levels should keep it closer to 96, a trader at a foreign bank said.
US and Iranian officials spoke separately with mediators on Monday as part of a renewed effort to end seven months of war, according to officials of both countries. Over the weekend, US President Donald Trump had said that he had rejected a peace proposal from Iran.
The uncertainty has kept oil prices and US Treasury yields elevated, boosting the dollar. On the day, the US 10-year Treasury yield was a touch higher at 5.246% while the dollar index ticked up 0.3% to 101.5.
