The rupee on Tuesday rebounded by 13 paise to close at 73.61 against the US dollar on the back of strong gains in domestic equities and a weak dollar ahead of the outcome of the US Fed meeting.
Gains in emerging markets and Asian currencies also bolstered the rupee sentiment, analysts said.
At the interbank forex market, the local unit opened flat at 73.74 against the greenback. During the session, the domestic unit witnessed an intra-day high of 73.58 before closing at 73.61.
On Monday, the rupee had dropped by 26 paise to settle at a nearly four-week low of 73.74 against the US dollar.
"The Indian rupee appreciated against the US dollar as the greenback fell from one-month highs ahead of the Fed Meeting outcome on Wednesday," Sriram Iyer, Senior Research Analyst at Reliance Securities, said.
The US Fed will begin its two-day policy meeting later in the day. Policymakers will debate the taper timeline and will put out new projections on interest rates.
Additionally, the local unit also took support from strengthening emerging market and Asian currencies which recovered after a selloff on Monday.
"The Indian rupee recovered the lost ground in Tuesday''s trade after pullback in dollar and rebound in yuan. Rupee is also benefitting from bond inflows in the last couple of days," said Dilip Parmar, Research Analyst, HDFC Securities.
Parmar further said that all eyes will be on Federal Open Market Committee (FOMC) outcome on Wednesday, Bank of England (BoE) meeting and Evergrande interest payment. This will keep risk appetite on tenterhooks with sharp swings both sides depending upon the outcome, he said.
Near term bias for USDINR expected to consolidate in the range of 73.85 to 73.40, he noted.
The dollar index, which gauges the greenback''s strength against a basket of six currencies, fell 0.14 per cent to 93.14. Brent crude futures, the global oil benchmark, rose 1.14 per cent to $74.76 per barrel.
On the domestic equity market front, the BSE Sensex ended 514.34 points or 0.88 per cent higher at 59,005.27, while the broader NSE Nifty advanced 165.10 points or 0.95 per cent to 17,562.00.
"The rally in equity markets allowed the rupee to appreciate. However, this rally could be short-lived till the US Fed meeting. Unless the Chinese government decides to bail out the stressed property sector, risk aversion can make a comeback soon.
"We expect a near term range of 73.40 and 74.00 on the spot," said Anindya Banerjee, DVP, Currency Derivatives & Interest Rate Derivatives at Kotak Securities Ltd.
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