The rupee appreciated by 38 paise to 82.75 against the US dollar in early trade on Friday, as the inclusion of India in the JPMorgan bond index boosted investor sentiment.
Forex traders said the decision of JPMorgan Chase & Co to include Indian government bonds in its benchmark emerging-market index, is expected to have far-reaching implications for India's debt market and global investors.
At the interbank foreign exchange, the domestic unit opened strong at 82.75, registering a gain of 38 paise from its previous close.
On Thursday, the rupee consolidated in a narrow range to settle 2 paise lower at 83.13 against the dollar.
India's inclusion in a major global bond index will open doors to increased foreign investment in the nation's debt market, traders said.
"The inclusion of India in the JPMorgan bond index has had a favourable effect on the rupee, with the currency showing strength by appreciating around 0.42 per cent in the NDF markets and reaching levels around 82.80," CR Forex Advisors MD-Amit Pabari said.
This positive momentum is anticipated to carry over to the onshore market, with a potential to move towards 82.50 in the next few sessions once 82.80 levels are taken out. The upside is likely to remain capped between 83.25-83.30 zone amid strong RBI intervention, Pabari added.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.12 per cent to 105.48.
Brent crude futures, the global oil benchmark, was trading 0.61 per cent higher at USD 93.87 per barrel.
In the domestic equity market, the 30-share BSE Sensex was trading 22.14 points or 0.03 per cent higher at 66,252.38 points. The broader NSE Nifty declined 3.65 points or 0.02 per cent to 19,738.70.
Foreign Institutional Investors (FIIs) were net sellers in the capital market on Thursday as they offloaded shares worth Rs 3,007.36 crore, according to exchange data.
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