MUMBAI, July 15 (Reuters) - The Indian rupee on Wednesday hovered around its over one-month low before ending nearly flat, wedged between modest portfolio inflows and dollar demand from local corporates, while traders continued to keep a close watch on oil prices.
The rupee closed at 96.2550 per dollar, little changed from its close at 96.20 in the previous session.
The currency shot to an intraday peak of 96.06 following dollar sales from foreign banks, likely on behalf of custodial clients, but lost ground as merchant dollar demand picked up, traders said.
Asian currencies were largely range-bound as well, while the dollar index steadied just shy of the 101 mark after softer-than-expected U.S. inflation data pegged it back on Tuesday.
Markets have scaled back wagers on rate hikes by the U.S. Federal Reserve, but sentiment remains tentative and prone to a turnaround in case fighting between the U.S. and Iran escalates and oil prices rise further.
Brent futures climbed 2% to $86.44 a barrel, as the U.S. reimposed a naval blockade on Iranian ports and Iran's Islamic Revolutionary Guard Corps threatened to close "all other export corridors that benefit the U.S. and its allies".
"It looks like investors will struggle to price in a benign inflation environment given developments in the energy sector, where both oil and natural gas are on the rise again, while refined products like diesel are surging as Ukraine intensifies its attack on Russian refineries," ING said in a note.
Interest rate swap markets are pricing in about a 40-basis-point Fed rate hike over the next 12 months and 65 bps by the Reserve Bank of India.
Both central banks are expected to hold pat on rates at their upcoming meetings in late July and early August.
India's consumer inflation rose above the 4% medium-term target for the first time in 17 months in June, per data released earlier this week.
Reporting by Jaspreet Kalra; Editing by Sonia Cheema and Harikrishnan Nair
Source: Reuters