The rupee rebounded from its all-time low level and settled with a gain of 10 paise at 84.78 (provisional) against the US dollar on Friday, buoyed by a strong recovery in domestic equity markets and easing inflation data.
However, a strengthening American currency overseas and foreign fund outflows restricted the positive bias in the local unit, forex traders said.
At the interbank foreign exchange, the rupee opened at 84.87 and touched the intra-day high of 84.77 against the greenback. The unit finally ended the session at 84.78 (provisional) against the dollar, logging a gain of 10 paise from its previous closing level.
On Thursday, the rupee fell 5 paise to settle at the lowest-ever level of 84.88 against the US dollar. The previous record low closing level was recorded on December 9, when the unit settled 20 paise lower at 84.86 against the dollar.
The latest official data released on Thursday showed India's retail inflation eased in November to 5.48 per cent and came within the Reserve Bank's comfort zone mainly due to lower food prices, creating headroom for a rate cut at the central bank's rate-setting panel meeting under new Governor Sanjay Malhotra in February.
India's industrial production (IIP) growth slowed to 3.5 per cent year-on-year in October 2024, mainly due to poor performance of mining, power and manufacturing.
The IIP recorded a growth of 11.9 per cent in October 2023.
Anuj Choudhary, Research Analyst at Mirae Asset Sharekhan, said the rupee recovered from an all-time low on the decline in inflation and upbeat IIP data.
Positive domestic markets also supported the rupee, he said, adding that the US dollar rose on disappointing economic data from the UK and Germany.
"We expect the rupee to trade with a negative bias on strong US dollar and elevated crude oil prices. FII outflows may also pressure the rupee. However, positive domestic equities and better-than-expected macroeconomic data may support the rupee at lower levels. USD-INR spot price is expected to trade in a range of Rs 84.65 to Rs 85.05," Choudhary said.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading higher by 0.06 per cent at 106.70.
Analysts said that the dollar has been strengthening after the US inflation numbers came on expected lines, raising hopes for an interest rate cut by the Federal Reserve in the upcoming policy review next week.
Brent crude, the global oil benchmark, climbed 0.54 per cent to USD 73.81 per barrel in futures trade.
On the domestic equity market front, the 30-share benchmark index Sensex closed sharply higher by 843.16 points or 1.04 per cent at 82,133.12 points. The Nifty jumped 219.60 points, or 0.89 per cent, to 24,768.30 points.
Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Thursday, as they offloaded shares worth Rs 3,560.01 crore, according to exchange data.
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