The rupee stayed in a narrow range and settled flat at 83.94 (provisional) against the American currency on Friday, as the support from a rally in domestic equities and weak greenback was negated by foreign fund outflows amid geopolitical tensions in the Middle East.
At the interbank foreign exchange, the rupee opened at 83.93 and touched the intra-day low of 83.96 against the greenback during the session. The local unit finally settled flat at 83.94 (provisional) against the dollar.
On Wednesday, the rupee settled 3 paise higher at 83.94 against the US dollar.
Forex markets were closed on Thursday on account of Independence Day.
Anuj Choudhary, Research Analyst at Sharekhan by BNP Paribas, said the positive tone in the domestic markets supported the rupee at lower levels.
"We expect the rupee to trade with a slight negative bias on...geopolitical tension in the Middle East between Israel and Iran.
"Traders may take cues from US consumer confidence and housing data today. USD-INR spot price is expected to trade in a range of Rs 83.75 to Rs 84.25," he added.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading lower by 0.14 per cent at 102.66.
Analysts said the dollar weakened as market participants were awaiting the US consumer confidence index and housing data to be released later in the day.
Brent crude, the global oil benchmark, declined 1.20 per cent to USD 80.07 per barrel.
On the domestic equity market front, Sensex surged 1,330.96 points, or 1.68 per cent, to settle at 80,436.84 points. The broader Nifty also soared 397.40 points, or 1.65 per cent, to 24,541.15 points.
Foreign institutional investors (FIIs) were net sellers in the capital markets on Wednesday, as they offloaded shares worth Rs 2,595.27 crore, according to exchange data.
On the domestic macroeconomic front, wholesale inflation fell to a 3-month low of 2.04 per cent in July on the decline in prices of food items, especially vegetables, government data released on Wednesday showed.
The latest government data released on Wednesday showed India's exports contracted 1.2 per cent to USD 33.98 billion in July, while the trade deficit widened to USD 23.5 billion.
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