The rupee weakened by 7 paise to close at 95.83 against the US dollar on Thursday as escalating tensions between the United States and Iran continued to weigh on investor sentiment and fuel demand for safe-haven assets.
Forex traders said the prolonged crisis in West Asia remains a major concern for India, which depends heavily on imported energy supplies.
At the interbank foreign exchange market, the rupee opened at 95.70 against the dollar and moved between an intraday high of 95.59 and a low of 95.85 before settling at 95.83. The domestic currency had closed at 95.76 on Wednesday after losing 40 paise.
The dollar index, which measures the US currency against a basket of six major currencies, was down 0.21 per cent at 99.31.
Brent crude, the global oil benchmark, was trading at USD 95.81 per barrel, down 2.04 per cent in futures trade.
Anuj Choudhary, Research Analyst at Mirae Asset ShareKhan, said geopolitical tensions and firm US Treasury yields are expected to keep pressure on the rupee. He added that any recovery in the dollar could further weaken the domestic currency, while elevated crude oil prices remain a concern.
According to Choudhary, positive developments in US-Iran peace efforts could help limit further losses for the rupee. He said traders would also closely monitor US weekly unemployment claims data and the non-farm payrolls report, along with the Reserve Bank of India's monetary policy decision.
Market participants are focused on the Reserve Bank of India's Monetary Policy Committee meeting, which began its three-day deliberations on Wednesday. The six-member panel, headed by RBI Governor Sanjay Malhotra, is scheduled to announce its decision on June 5.
Analysts expect the central bank to keep the key policy rate unchanged at 5.25 per cent as policymakers assess the impact of the West Asia conflict on inflation and economic growth.
In the equity market, the Sensex rose 13.84 points to close at 74,360.01, while the Nifty gained 10.95 points to end at 23,416.55.
Foreign institutional investors sold equities worth Rs 5,616.56 crore on a net basis on Wednesday, according to exchange data.