The Indian rupee was nearly flat in early trade on Wednesday, withstanding strain from higher oil prices and a global bond rout, as the Reserve Bank of India's persistent interventions anchored the unit and sharply lowered volatility expectations.
The rupee was at 95.7250 per dollar, as 10.48 a.m. IST, down marginally from Tuesday's close of 95.68.
The muted decline came even as oil prices continued to climb, knocking at their highest levels in three weeks as investors gauged conflicting messages from Tehran and Washington on whether the Strait of Hormuz, a key global energy artery, is open to ships.
U.S. President Donald Trump said on Tuesday no talks were taking place with Iran and insisted that the Strait was open, contradicting Iran's assertion that the critical waterway remained shut to shipping.
The prevailing uncertainty has kept pressure on the rupee, and it was compounded this week by a jump in global long-tenor bond yields across Japan to the U.S. as investors fretted over inflation pressures and stretched fiscal balances.
RBI intervention, on the other hand, has been a consistent anchoring force for the currency, traders and analysts said.
The rupee's 1-month implied volatility, a gauge of future expectations, has dropped to under 4%, its lowest since January.
A large Indian conglomerate's consistent participation in option structures that are net sellers of implied volatility has contributed to the fall, alongside interventions, a banker at a Mumbai-based bank said.
The same conglomerate, though, has been a heavy buyer of spot dollars over recent sessions, a second banker at a Mumbai-based lender said, both requesting anonymity to discuss client transactions.
Later in the day, the focus will turn to the release of minutes from the RBI and the U.S. Federal Reserve's latest monetary policy reviews, in which both central banks left policy rates unchanged.
