The Indian rupee ended marginally weaker on Thursday as sustained hedging appetite from importers weighed on the currency even as a cool off in oil prices continued to support market sentiment.
The rupee closed at 95.22 per dollar, down slightly from its close at 95.1175 in the previous session.
Brent crude oil prices lingered below $80 per barrel on Thursday as investors assessed the Iran-Oman talks over whether they would restore flows via the Strait of Hormuz, a key artery for global energy supplies.
The rupee took comfort in the contained oil prices but importers have stepped up hedging activity, limiting the room for gains in the currency, a trader at a private bank said.
The currency's recent bounce has drawn in importers while compressed forward premiums are keeping exporters disinterested, the trader said.
In late July, the rupee appeared vulnerable to breaching record lows but was shored up by central bank interventions and a subsequent retreat in crude from around $100 per barrel to under $80 now.
Analysts say the recent cool-off in crude, alongside modest inflation in India and robust capital flows under crisis-era measures have given the central bank breathing room on interest rates even as some Asian and EM peers have moved to rate hikes.
The Reserve Bank of India kept its policy rates unchanged for the fourth consecutive policy meeting on Wednesday.
"Relatively low Indian rates continue to make the INR easier to short during adverse risk events. This helps explain why short-term pressures on the currency keep resurfacing," analysts at ANZ said in a note.
"We continue to expect at least two 25bp hikes, starting December 2026."
Dollar-rupee forward premiums, of the cost of hedging, slipped with the 1-year implied yield easing 4 basis points to 2.75%, the lowest since July 6. Traders said the uptick in U.S. bond yields and reduced bets on India rate hikes led to the fall.
