In early trade on Thursday, the rupee strengthened 26 paise to 81.67 US cents against the US dollar after the latter depreciated from recent highs.
The domestic unit started out at 81.72 against the dollar on the interbank foreign exchange but moved up to touch 81.67, gaining 26 paise from its previous close.
The rupee has strengthened in offshore trading on broad-based dollar weakness. It is likely to trade in a range of 81.55-81.85 with sideways price action, IFA Global Research Academy said in a research note.
The dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.41 per cent to 105.63, post the weak US data and dovish Fed minutes.
"Minutes of the latest Fed meeting indicated that most Fed members were in support of slowing the pace of rate hikes but 'various' Fed members saw rates peaking at higher levels," IFA Global Research Academy said.
Brent crude futures, the global oil benchmark, declined 0.21 percent to USD 85.23 per barrel.
In the domestic equity market, the 30-share BSE Sensex was trading 180.14 points or 0.29 per cent higher at 61,690.72. Similarly, the broader NSE Nifty rose 66.50 points or 0.36 per cent to 18,333.75.
Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Wednesday as they offloaded shares worth Rs 789.86 crore, according to exchange data.
