The Indian rupee fell to its weakest level since late July on Wednesday, due to elevated oil prices and sustained dollar demand from companies, but likely intervention by the central bank kept a lid on its losses.
The Asian currency closed at 95.7525 per dollar, against 95.68 in the previous session.
Persistent market interventions by the Reserve Bank of India over the last 10 days have made traders wary of initiating bearish wagers on the rupee as it nears the key psychological level of 96 per dollar.
On Wednesday, the central bank was present in the market for most of the session, via state-run banks, a trader at a private bank said.
"They (RBI) have completely cooled it down and with the break of 95.75, some exporter selling also picked up on expectations that this zone could be a near term top (for USD/INR)," the trader added.
A renewed rise in crude prices remains the primary drag on the rupee with Brent crude oil futures rising to nearly $92 per barrel, up over 3% this week.
U.S. President Donald Trump said on Tuesday no talks were taking place with Iran and insisted that the Strait of Hormuz was open, contradicting Iran's assertion that the critical waterway remained shut to shipping.
Asian currencies were mostly firmer, helped along by a broadly weaker greenback, pulling the dollar index down 0.2% to 99.4.
Investors' focus now turns to the release of minutes from the RBI and the Federal Reserve's latest policy reviews, in which both central banks left rates unchanged.
"While there may be a few hawkish references in tonight's minutes that could nudge the dollar and short-dated rates a little firmer, we do not see the minutes as a game changer," analysts at ING said in a note.
Markets are pricing in 37 basis points of Fed hikes over the next 12 months and 57 bps by the RBI.
