The rupee inched up 1 paisa to 83.43 against the US dollar in early trade on Thursday on the back of a weak American currency and positive domestic equity markets.
Forex traders said an upward movement in the crude oil prices resisted a sharp rise in the Indian currency even as investors moved cautiously ahead of the RBI's monetary policy decision to be announced on Friday.
At the interbank foreign exchange market, the local unit opened at 83.40 and slipped to 83.43 against the greenback, trading 1 paisa higher from its previous close.
On Wednesday, the domestic currency settled 7 paise higher at 83.44 against the dollar.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.15 per cent lower at 104.06.
Analysts attributed the weakness in the dollar index to a sharp fall in US Treasury yields after the latest data showed private sector job growth in May was slower than estimated, raising expectations of an interest rate cut by the US Federal Reserve.
They said that market participants are expected to take further cues from the weekly US jobs data to be released later in the day. Also, they said the decision of RBI's rate-setting panel to impact investors' sentiment.
The Monetary Policy Committee (MPC) of RBI on Wednesday started its three-day deliberations to decide the next monetary policy. Reserve Bank Governor Shaktikanta Das will announce the decisions on Friday.
"The Reserve Bank of India is set to keep its repo rate at 6.5 per cent at its June 7 review. Policy is turning more restrictive as cooling inflation pushes up real rates, hurting growth," said Amit Goel, Co-Founder & Chief Global Strategist, Pace 360.
He further said the RBI’s record dividend payment of Rs 2.1 lakh crore to the government for FY24 may alleviate concerns about the growth outlook.
Brent crude futures, the global oil benchmark, advanced 0.38 per cent to USD 78.71 per barrel.
On the domestic equity market, the 30-share BSE Sensex climbed 303.91 points or 0.41 per cent to 74,686.15 in early trade. The NSE Nifty went up 70.25 points or 0.31 per cent to 22,690.60.
Foreign investors were net sellers of Indian equities on Wednesday as they offloaded shares worth Rs 5,656.26 crore on a net basis. FIIs bought shares worth Rs 21,012.72 crore and sold equities worth Rs 26,668.98 crore in the cash segment.
India's service sector growth eased to a five-month low in May amid fierce competition, price pressures and a severe heatwave, even as new orders from international markets expanded at the steepest pace in a decade, according to a monthly survey released on Wednesday.
The seasonally adjusted HSBC India Services Business Activity Index fell to 60.2 in May from 60.8 a month earlier, its lowest mark since last December.
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