The Indian rupee ended lower on Thursday and premiums also dropped, pressured by higher U.S. yields, while likely dollar inflows limited the domestic currency's fall.
The rupee ended down 0.1% to 82.74 versus the U.S. dollar. The currency hit a near three-month low of 82.85 earlier in the week.
The Korean won and the Malaysian ringgit were down 0.7%, while the Indonesian rupiah and the offshore Chinese yuan slipped 0.34% and 0.2%, respectively. The dollar index rose to 104.16, the highest in over two months.
Scope for the rupee's further depreciation to 83 levels is limited and market participants are avoiding going too long on the USD/INR, said Arnob Biswas, FX research analyst at SMC Global Securities.
The USD/INR has faced stiff resistance at the 82.85 level this week and fears of intervention from the Indian central bank at 83 levels have discouraged traders to go long, traders and analysts said.
Likely dollar inflows from corporates and foreign investment into equities have also limited the downfall of the rupee, traders said.
Tracking rising U.S. treasury yields, the USD/INR 1-year implied yield dropped to 1.95%.
Meanwhile, the dollar is seeing safe-haven flows due to uncertainty in U.S. debt ceiling talks and the rate hike trajectory of the U.S. Federal Reserve.
Fitch put the United States' "AAA" debt ratings on negative watch on Wednesday in a precursor to a possible downgrade, should lawmakers fail to raise the ceiling.
Following a lack of clarity from the Fed minutes for May, the odds of a rate hike in June are at 34%. (Reporting by Nimesh Vora and Sethuraman NR in Mumbai; Editing by Sohini Goswami)