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The rupee appreciated 9 paise to close at 82.96 (provisional) against the US dollar on Wednesday, tracking a correction in the greenback against major currencies and fresh foreign capital inflows.
However, a rise in crude oil prices and muted domestic markets capped the sharp gains in the domestic unit, forex traders said.
At the interbank foreign exchange market, the local unit opened at 83.03 against the greenback. The unit hit an intraday high of 82.94 and a low of 83.09.
The local unit finally settled at 82.96 (provisional) against the dollar, higher by 9 paise from its previous close of 83.05.
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"We expect the rupee to trade with a slight positive bias on a rise in global risk sentiments and a soft US Dollar. However, the surge in crude oil prices and hawkish comments from various major central bank officials may cap the sharp upside," said Anuj Choudhary Research Analyst, Sharekhan by BNP Paribas.
Traders may take cues from trade balance data from the US. Investors may remain cautious ahead of the RBI’s monetary policy decision on Thursday.
"RBI is expected to keep its monetary policy unchanged. USD/INR spot price is expected to trade in a range of Rs 82.60 to Rs 83.30," Choudhary said.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.17 per cent lower at 104.04.
"The US Dollar eased as traders booked profits after the greenback rose sharply over the previous two sessions. Positive tone in Euro and Pound amid hawkish comments from ECB officials also weighed on Dollar," Choudhary added.
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Brent crude futures, the global oil benchmark, rose 0.52 per cent to $79 per barrel.
On the domestic equity market front, Sensex declined 34.09 points, or 0.05 per cent, to 72,152.00 points. The Nifty rose 1.10 points, or 0.01 per cent, to 21,930.50 points.
Foreign Institutional Investors (FIIs) were net buyers in the capital markets on Tuesday as they purchased shares worth ₹92.52 crore, according to exchange data.
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