MUMBAI: The rupee depreciated 7 paise to close at 95.83 (provisional) against the US dollar on Thursday, as heightened geopolitical tensions between the US and Iran drove energy volatility and aggressive safe-haven buying.
Forex traders said the prolonged West Asia crisis poses a major risk for India, which relies heavily on energy imports.
Market participants are now turning their attention to the Reserve Bank of India's MPC rate decision on June 5, as inflation, growth and the rupee are under focus. The six-member MPC, headed by RBI Governor Sanjay Malhotra, will announce its decision on June 5.
At the interbank foreign exchange market, the rupee opened at 95.70 against the US dollar, then touched an intra-day low of 95.85 and a high of 95.59 before closing at 95.83 (provisional), down 7 paise from its previous close.
On Wednesday, the rupee depreciated 40 paise to close at 95.76 against the US dollar.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading at 99.31, down 0.21 per cent.
Brent crude, the global oil benchmark, was trading lower by 2.04 per cent at USD 95.81 per barrel in futures trade.
"We expect the rupee to trade with a negative bias on geopolitical tensions and firm US treasury yields. Any bounce back in the US dollar may also pressurise the rupee. Crude oil prices continue to remain elevated," said Anuj Choudhary, Research Analyst at Mirae Asset ShareKhan.
Choudhary added that any positive development from the US-Iran peace talk front may prevent a sharp fall for the domestic unit.
"Traders may take cues from weekly unemployment claims data from the US today (Thursday) and the non-farm payrolls report on Friday. Investors may watch out for the RBI monetary policy decision," Choudhary said, adding that "USDINR spot price is expected to trade in a range of 95.40 to 96.15".
The high-powered Monetary Policy Committee, headed by RBI Governor Sanjay Malhotra, on Wednesday started its three-day brainstorming amid expectations that the central bank may leave the key policy rate unchanged at 5.25 per cent as the West Asia conflict poses challenges to inflation as well as economic growth.
After three days of deliberations, the six-member Monetary Policy Committee (MPC) will announce the decision on June 5.
On the domestic equity market front, Sensex advanced marginally by 13.84 points to settle at 74,360.01, while the Nifty was up 10.95 points to 23,416.55.
Foreign institutional investors offloaded equities worth Rs 5,616.56 crore on a net basis on Wednesday, according to exchange data.