The rupee weakened to a three-week low on Monday as broad-based strength in the US dollar outweighed support from softer crude oil prices and positive domestic market sentiment, while dollar demand linked to maturing non-deliverable forward (NDF) contracts added to pressure on the local currency.

The rupee settled at 95.43 against the US dollar in the interbank foreign exchange market, down 0.2 per cent from the previous close. During the session, it touched an intraday low of 95.48, its weakest level since June 12.

Market participants said the greenback gained against most Asian currencies after expectations of a relatively hawkish US interest rate trajectory boosted demand for the dollar.

“The Indian rupee began the week on a weaker footing, pressured by broad-based strength in the US dollar against major currencies. Despite supportive factors such as risk-on sentiment and softer crude oil prices, the rupee remained under strain due to persistent dollar demand and cautious market sentiment,” said Dilip Parmar, research analyst at HDFC Securities.

Traders also observed intermittent dollar selling by state-run banks, a move widely interpreted as an attempt by the Reserve Bank of India (RBI) to prevent excessive volatility and curb a sharper depreciation in the currency.

Market participants pointed to renewed pressure from arbitrage activity between the domestic foreign exchange market and the offshore NDF market, with companies increasing dollar purchases in the onshore market, adding to demand for the US currency.

Anuj Choudhary, research analyst at Mirae Asset Sharekhan, said the rupee came under pressure as the dollar firmed on expectations that markets continue to price in another US rate hike this year.

However, gains in domestic equities and declining crude oil prices helped limit losses.

Dealers expect the rupee to remain range-bound between 94.80 and 95.80 this week. Sustained appreciation, they said, would depend on stronger foreign portfolio inflows into domestic equities and increased exporter dollar sales.

However, intermittent NDF contract maturities could trigger fresh bouts of volatility, potentially prompting further intervention by the RBI.

Forex traders also noted that any sizeable foreign currency inflows are likely to be absorbed by the central bank to replenish reserves rather than allowing the rupee to appreciate sharply.

India’s foreign exchange reserves declined by $5.65 billion to $666.93 billion during the week ended June 27, according to RBI data released on Friday.

Reflecting expectations of a relatively stable currency over the coming year, analysts at Goldman Sachs have revised their rupee outlook, forecasting the USD/INR pair at 94, 95 and 96 over the next three, six and twelve months, respectively, compared with their earlier projections of 96, 96 and 97.