Mumbai: The rupee appreciated 31 paise to 85.05 against the US dollar in early trade on Wednesday, supported by gains in domestic equities and positive macroeconomic data.
Forex traders said a surge in global crude oil prices may weigh on the rupee. Over the last few sessions, Brent crude prices have surged to near USD 66 per barrel, which could widen India's trade deficit.
Moreover, foreign fund outflows also contained the appreciation of the domestic unit to some extent.
At the interbank foreign exchange, the domestic unit opened at 85.05 against the greenback, registering a gain of 31 paise over its previous close.
In initial trade, the local unit also touched 85.23 against the greenback.
On Tuesday, the rupee reversed early gains to settle flat at 85.36 against the US dollar.
Indian rupee fell on Tuesday on dollar buying from oil companies, as rising crude oil prices prompted importers to raise hedging, said Anil Kumar Bhansali, Head of Treasury and Executive Director, Finrex Treasury Advisors LLP.
Exporters will continue to sell on all good upticks, while importers can buy the dips as the rupee is expected to trade in a range, Bhansali said, adding that the range for the day is likely to be 84.75 to 85.50.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading lower by 0.05 per cent at 100.95.
Brent crude, the global oil benchmark, fell 0.54 per cent to USD 66.27 per barrel in futures trade.
In the domestic equity market, the 30-share BSE Sensex advanced 250.80 points, or 0.31 per cent, to 81,399.02, while the Nifty rose 58.45 points, or 0.24 per cent, to 24,636.80.
Foreign institutional investors (FIIs) offloaded equities worth Rs 476.86 crore on a net basis on Tuesday, according to exchange data.
On the domestic macroeconomic front, India's retail inflation eased to a nearly six-year low of 3.16 per cent in April, creating enough room for the Reserve Bank to go for another round of rate cut in the June monetary policy review.
"India's inflation rose by 3.16 per cent, lower than last month and almost equivalent to expectations. This could give RBI another chance to cut rates next month in its scheduled meeting," Bhansali said.
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