The rupee appreciated 5 paise to 83.92 against the US dollar in early trade on Wednesday, ahead of the Reserve Bank of India's monetary policy announcement.
Forex traders said the spotlight is firmly on the RBI as it prepares to announce its monetary policy.
Most major central banks have pivoted toward rate cuts, with the US Fed being the latest to lower rates by 50 basis points. The RBI has maintained its accommodative stance. All attention now shifts to whether the central bank will move from its accommodative stance to a more neutral approach.
At the interbank foreign exchange market, the local unit opened at 83.92 against the American currency, registering a rise of 5 paise over its previous close.
On Tuesday, the rupee rose 3 paise to close at 83.97 against the US dollar.
The dollar index, which gauges the greenback's strength against a basket of six currencies, was up 0.03 per cent to 102.58 points.
Brent crude, the international benchmark, was trading higher by 0.40 per cent to USD 77.49 per barrel in futures trade.
The rupee appears to be range-bound for now, caught between global pressures and stronger US economic data on one side, while the RBI stands firm on the other, bolstered by its robust foreign reserves of over USD 700 billion, CR Forex Advisors MD Amit Pabari said.
"As a result, the USDINR pair is expected to trade within a range of 83.80 to 84.05 in the short term," Pabari added.
On the domestic equity market, the 30-share BSE Sensex appreciated 257.05 points, or 0.31 per cent, to 81,891.86, while the Nifty was up 75.75 points, or 0.3 per cent, to 25,088.90 points.
Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Tuesday, as they offloaded shares worth Rs 5,729.60 crore, according to exchange data.
The reconstituted rate-setting panel of the Reserve Bank on Monday started deliberations on the next bi-monthly monetary policy.
In the current context, experts feel that the RBI may not follow the US Federal Reserve, which lowered the benchmark rates by 50 basis points, and the central banks of some developed nations, which have reduced the interest rates.
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