The rupee gained 15 paise to 81.65 against the US dollar in early trade on Thursday tracking the weakness of the American currency in the overseas market.
Forex traders said significant foreign fund inflows and crude oil prices below USD 75 a barrel also supported the local unit.
At the interbank foreign exchange, the domestic unit opened strong at 81.68 against the dollar and then rose to 81.65, registering a rise of 15 paise over its previous close.
On Wednesday, the rupee closed at 81.80 against the US currency.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.24 per cent to 101.09.
"The Fed hiked rates by 25 bps to 5.00-5.25 per cent, in line with market expectations. In its statement, the FOMC removed its mention of future interest rate increases, hinting at a likely pause in June, which majorly weighed on the DXY," CR Forex Advisors MD Amit Pabari said.
Brent crude futures, the global oil benchmark, advanced 0.57 per cent to USD 72.74 per barrel.
"Broad weakness in the USD and falling crude prices continued to help the local currency trade higher. However, the RBI continued to mop up the excess dollars to avoid volatility and build up forex reserves. FII continued to remain positive for May as India remained a stronghold place as compared to its peers, which is also weighing on the dollar demand," Pabari said.
Foreign Institutional Investors (FIIs) were net buyers in the capital market on Wednesday as they purchased shares worth Rs 1,338.00 crore, according to exchange data.
Pabari further added, "overall, the rupee is expected to trade in the narrow range of 81.70-82.30 levels as geopolitical tensions are increasing leading to huge volatility." In the domestic equity market, the 30-share BSE Sensex advanced 76.42 points or 0.12 per cent to 61,269.72. The broader NSE Nifty rose 29.30 points or 0.16 per cent to 18,119.15.
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