The rupee pared its initial losses and settled 28 paise higher at 81.41 against the US dollar on Wednesday, tracking a weak greenback overseas and a firm trend in domestic equities.
However, rising crude oil prices capped the gains in the rupee, traders said.
At the interbank foreign exchange market, the local unit opened weak at 81.80, but pared the losses and settled for the day at 81.41, registering a rise of 28 paise over its previous close.
During the trading session, the local unit witnessed an intra-day high of 81.25 and a low of 81.82 against the American currency.
On Tuesday, the rupee had closed at 81.69 against the US dollar.
The dollar index, which gauges the greenback’s strength against a basket of six currencies, declined 0.45 per cent to 101.93.
According to Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services, volatility in rupee remained elevated after the Bank of Japan (BoJ) held rates unchanged.
Inflows on the domestic front also led to gains in the rupee.
“The BoJ decided to keep its yield curve tolerance band and ultra-dovish -0.1 per cent interest rate unchanged. The Japanese Yen lost by about over 2 per cent after the release of the policy statement,” Somaiya said.
Investors will now focus on retail sales numbers from the US.
“We expect the USD-INR (Spot) to trade sideways and quote in the range of 81.20 and 81.70,” Somaiya added.
On the domestic equity market front, benchmarks extended their rally for second straight day amid buying in HDFC twins & fresh foreign funds inflows.
The 30-share BSE Sensex advanced 390.02 points or 0.64 per cent to end at 61,045.74. The broader NSE Nifty rose 112.05 points or 0.62 per cent to 18,165.35.
Tata Steel was the biggest gainer among the Sensex components, spurting 2.72 per cent, followed by Larsen & Toubro, Wipro, HDFC Bank, HDFC, Bharti Airtel, NTPC, and ITC.
The HDFC duo accounted for around half of the benchmark’s gains.
In contrast, Tata Motors, UltraTech Cement, IndusInd Bank, Nestle India, Bajaj Finserv, State Bank of India and Reliance Industries were the laggards, dropping up to 1.65 per cent.
“After the adverse performance during the last one and a half months, Indian market has been advancing in the last 2-3 trading days. The trend is supported by the marginal improvement in FIIs inflows and upside in domestic investments,” said Vinod Nair, Head of Research at Geojit Financial Services.
In the broader market, the BSE midcap gauge climbed 0.46 per cent and the smallcap index gained 0.17 per cent.
Among sectoral indices, metal jumped 2.44 per cent, capital goods climbed 1.46 per cent, industrials (1.24 per cent), telecommunication (0.92 per cent), consumer durables (0.67 per cent), commodities (0.62 per cent) and financial services (0.62 per cent). Utilities, auto, power and realty ended in the red.
“Domestic equities received a positive handover from its global peers, after the Bank of Japan maintained its current range of yield curve control....Market is showing strength for last two days supported by healthy earning results so far and expectation of strong Budget before Union Election next year.
“FIIs marginally turning buyers have also helped to uplift the sentiments... Metal stocks are also likely to remain in momentum as prices surge globally due to shortage of inventory. Capital Goods too will remain in focus on the back of good order inflow and expectation of increase spending in Budget,” said Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services.
International oil benchmark Brent crude jumped 1.11 per cent to $86.87 per barrel.
Foreign Institutional Investors (FIIs) turned buyers on Tuesday after unabated outflows for the past many days. They bought shares worth a net Rs 211.06 crore on Tuesday, according to exchange data.