The rupee advanced by 22 paise to 74.44 against the US dollar in opening trade on Wednesday, as a positive trend in equity markets lifted investor sentiment.
Forex traders said the appreciation in the local unit could be restricted amid a sharp rise coronavirus infections and fatalities in the country and as investors await the US Federal Reserve’s monetary policy outcome.
At the interbank forex market, the local unit opened flat at 74.49 against the US dollar, then gained some strength to quote at 74.44, a rise of 22 paise over its last close.
In the previous session, the rupee had settled at 74.66 against the American currency.
"A rebound of the US dollar and rise coronavirus infections and fatalities climbing to another record high in India could keep appreciation bias limited," Reliance Securities said in a research note.
Additionally, month-end dollar demand from importers and traders looking to take profits on short positions on the US currency could also cap appreciation bias, it added.
Single-day rise of 3,60,960 COVID-19 infections, 3,293 fatalities pushed India''s tally of cases to 1,79,97,267 and death toll to 2,01,187, according to official data.
The dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.10 per cent to 91.
"The US dollar Index was trading higher this morning in Asian trade tracking the strength of the bond yields ahead of the Fed meeting outcome," the Reliance Securities note said.
Besides the Fed, investors are looking to US President Joe Biden's first address to a joint session of Congress.
Global oil benchmark, Brent crude futures, rose 0.05 percent to $66.45 per barrel.
On the domestic equity market front, the BSE Sensex was trading 382.66 points or 0.78 per cent higher at 49,326.80 in early deals, while the broader NSE Nifty rose 104.55 points or 0.71 percent to 14,757.60.
Foreign institutional investors were net sellers in the capital market on Tuesday as they sold shares worth Rs 1,454.75 crore, as per exchange data.