The currency opened 0.5% higher at 94.92 per U.S. dollar, its highest level since July 1, and has been moving in the 94.92-95.02 range in early trade.
The Brent crude oil benchmark tumbled 5.2% on Tuesday, extending losses by another 1% in Asian trade amid comments from Qatari and U.S. officials that fuelled hopes of a diplomatic resolution to the months-long Iran conflict.
The latest decline in crude oil prices reinforced the rupee’s positive bias, which has been building over recent sessions. Despite the recent momentum, traders said the break past the 95-per-dollar mark came as a surprise.
“I hadn’t expected the 95 level to give way,” a currency trader at a private-sector bank said.
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“It appears the underlying trend has become so supportive that positive developments are having a bigger impact (on lifting the rupee) than they normally would.”
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The decline in oil prices comes ahead of the Reserve Bank of India’s policy decision due shortly, where it is widely expected to leave interest rates unchanged.Traders expect the policy outcome to have only a limited impact on the rupee, with oil prices, the dollar and RBI FX intervention seen as dominant drivers of the currency in the near-term.
Dollar/rupee forward premiums eased ahead of the policy decision, largely tracking the move in the spot market. The one-year implied yield fell 4 basis points to 2.82%.