The Indian rupee drifted higher on Tuesday, buoyed by a decline in oil prices on optimism over potential mediation in the U.S.-Iran war, while strong inflows tied to the central bank's recent policy measures also aided sentiment.
The rupee rose 0.2% to 96.25 per dollar, as of 12 noon IST. The currency had fallen past 96.50 in the previous session to an over two-month low.
Brent crude futures fell 1% to $88.3 per barrel on Tuesday, as investors latched on to hopes of a resolution of the Middle East war that began on February 28 with U.S.-Israeli attacks on Iran. [O/R]
Brent hit a one-month high of $91.42 a barrel on Monday.
Traders also pointed to strong appetite to sell dollars at the daily reference rate, with the fix quoted at a modest discount of 0.30-0.40 paisa.
Earlier in the day, anticipated maturities of non-deliverable forward contracts had spurred expectations of elevated dollar demand at the reference rate.
"The offers (on USD/INR) are broad-based and state-run banks were actively near the start of the session as well," a trader at private bank said.
Focus is also on the scale and momentum of capital inflows under measures announced by the Reserve Bank of India last month to strengthen the country's balance of payments.
The steps have drawn more than $20 billion in about a month, with most of the inflows coming through foreign currency deposits by non-resident Indians.
The scale of forex deposits likely included both renewals and fresh deposits, explaining the overall push by officials to increase the scale of new flows under this window, Radhika Rao, senior economist at DBS said in a note.
The bank expects the measures to draw a cumulative $45-50 billion.
Elsewhere, Asian currencies were rangebound to modestly stronger while regional stocks ticked higher aided by the dip in oil prices.
