The rupee was trading in a narrow range and appreciated 4 paise to 83.47 against the US dollar in early trade on Wednesday, tracking a positive trend in domestic equities.
However, sustained foreign fund outflows weighed on the local unit and restricted the up move.
Forex traders said with foreign investors buying US dollars and the Reserve Bank of India (RBI) selling the greenback, the USD/INR pair is expected to remain range-bound with a bit of a weakness bias.
At the interbank foreign exchange market the local unit moved in a narrow range. It opened at 83.49 against the American currency and touched 83.47 in initial trade, registering a rise of 4 paise from its previous close.
On Tuesday, the rupee closed at 83.51 against the American currency.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was at 104.93, lower by 0.07 per cent.
Brent crude futures, the global oil benchmark, rose 0.69 per cent to USD 82.95 per barrel. Despite the marginal increase, crude prices have retreated from their elevated level of USD 84 per barrel.
"The decrease in oil prices is poised to positively impact India's trade balance, given that 25 per cent of its total import expenditure is attributed to petroleum product imports. Consequently, the lower oil prices are expected to alleviate pressure on the trade deficit, offering a favorable economic outlook," CR Forex Advisors MD Amit Pabari said.
Further, Pabari said that with this the rupee is expected to appreciate as this will reduce the pressure on the domestic currency.
On the domestic equity market, the 30-share BSE Sensex was trading 115.03 points, or 0.16 per cent higher at 73,219.64 points. The broader NSE Nifty was up 53.00 points, or 0.24 per cent, to 22,270.85 points.
Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Tuesday, as they offloaded shares worth Rs 4,065.52 crore, according to exchange data.
On the macroeconomic front, wholesale inflation rose to a 13-month high of 1.26 per cent in April fuelled by rising prices of food articles, especially vegetables, amid expectations of RBI holding interest rates in the policy review next month.
Meanwhile, Moody's Ratings on Tuesday said the Indian economy is projected to expand 6.6 per cent in the current fiscal year and said strong credit demand fuelled by robust economic growth will support the NBFC sector's profitability.
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