MUMBAI, July 28 (Reuters) - The Indian rupee strengthened on Tuesday to close at its strongest level in two weeks as a sharp retreat in oil prices and likely central bank intervention helped the currency cement its bounceback from near record low levels.
Brent crude oil prices fell 3% to $85.6 per barrel, their lowest in over a week, which helped lift the rupee to 95.8525 per dollar, up 0.1% from its previous close. The local currency hit a record low of 96.96 on May 20
State-run banks were spotted selling dollars on the day, most likely on behalf of the Reserve Bank of India, traders said.
The RBI has intervened in every trading session since Friday, stepping up defense of the currency, which traders are reading as a sign of lower tolerance for rupee weakness.
The RBI's stepped-up intervention also comes against the backdrop of higher-than-expected inflows - about $40 billion since early June - spurred by a series of measures unveiled last month.
The central bank seems to be laying down a "soft line in the sand," for the rupee, a trader at a state-run bank said. At the same time, if crude prices move sharply higher again, the pressure could rebound, the trader added.
Growing hopes for a resolution to the U.S.-Iran conflict have pulled oil prices about 15% lower from the peak hit last week, but traders are wary of a quick turn, as seen on multiple occasions over the course of the Iran war which started in late February.
Meanwhile, global stocks fell as investors dumped chipmakers on concerns about Chinese competition and funding of the AI boom with rising odds of a Federal Reserve rate hike also dampening the mood.
Interest rate futures are pricing a one-in-three chance of a rate hike by the Fed on Wednesday. The dollar index was a tad higher on the day at 101.6.
Reporting by Jaspreet Kalra; Editing by Mrigank Dhaniwala and Ronojoy Mazumdar
Source: Reuters