The rupee appreciated 14 paise to 79.77 against the US dollar in early trade on Thursday tracking the overnight weakness of the American currency.
However, higher oil prices, month-end importer demand and global recession fears could restrict the gains for the local unit, forex traders said.
At the interbank foreign exchange, the rupee opened at 79.80 against the American dollar, and touched 79.77 in initial deals, registering a gain of 14 paise over the last close.
On Wednesday, the rupee declined 13 paise to close at 79.91 against the US dollar.
"Rupee opened slightly stronger than Wednesday's close. The US FED increased rates by 75 basis points and said that the aim is to bring inflation down to 2 per cent but was also a bit dovish in its approach," said Anil Kumar Bhansali, Head of Treasury, Finrex Treasury Advisors.
Bhansali further noted that the Dow Jones and Asian indices were all up while Asian currencies also rose. "Though the dollar index fell below 107 levels, the dollar still remains strong until it breaches the 105 level," he said.
The dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.22 per cent to 106.21.
Global oil benchmark Brent crude futures rose 0.83 per cent to $107.50 per barrel.
On the domestic equity front, the 30-share Sensex was trading 464.87 points or 0.83 per cent higher at 56,281.19, while the broader NSE Nifty advanced 118.45 points or 0.71 per cent to 16,760.25.
Foreign institutional investors remained net sellers in the capital market on Wednesday, offloading shares worth ₹436.81 crore, as per exchange data.