TLT•TLT•MUMBAI, Sept. 23 (Reuters) - The Indian rupee was modestly weaker on Wednesday, tracking a dip in regional currencies as the prospect of interest rate hikes by the US Federal Reserve in the near term lifted the dollar index to its highest level since late July.
The rupee INR=IN was down 0.1% at 95.6950 per dollar compared to its close at 95.59 in the previous session.
Regional currencies were weaker by 0.1% to 0.3%, with investors keeping a keen eye on oil prices and the scale of wagers on rate hikes by the Fed. Interest rate futures markets have baked in about 75 basis points worth of hikes over the next 12 months.
The recent string of rate hikes and hawkish guidance from major central banks has been in focus for currency markets as the US-Israeli conflict with Iran drives oil prices higher and fans inflation worries.
On the day, Brent crude oil slipped about 1% to $98.4 per barrel on hopes that diplomacy at the UN General Assembly could pave the way for a resolution to the Middle East war.
US President Donald Trump on Tuesday said he could "annihilate" Iran if there is no deal, but also suggested an agreement could come soon.
Weakness in capital flows and stress on account of an elevated energy bill have translated to pressure on the rupee, partially absorbed by frequent central bank interventions that have kept the currency's losses in check.
Traders reckon that rhythm is likely to persist in the near term, especially after the central bank's bountiful haul of capital inflows under one-off policy measures to attract foreign currency boosted India's FX reserves to a record high.
"If USD/INR sustains below 95.70, the probability of a move towards 95.00-95.20 will increase, while 96.00 continues to act as a strong ceiling backed by RBI intervention," said Amit Pabari, managing director at FX advisory firm CR Forex.
