The rupee gained 14 paise 95.85 against the US dollar in early trade on Friday amid a positive trend in domestic equities and remained above the key psychological barrier of 96 per dollar.
Rupee Rises 14 Paise To 95.85 Against US Dollar In Early Trade
However, the Reserve Bank of India is likely to intervene to smooth out volatility in the currency market, they said.
Rupee Rises 14 Paise To 95.85 Against US Dollar In Early Trade
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Forex traders said persistent dollar demand from domestic importers in particular the oil companies, elevated crude oil prices, and broad-based strength in the US dollar index following hawkish Federal Reserve rate signals weighing on the local unit.
However, the Reserve Bank of India is likely to intervene to smooth out volatility in the currency market, they said.
At the interbank foreign exchange market, the rupee opened at 95.92 against the American currency then gained some ground and touched 95.85, registering a gain of 14 paise from its previous closing level.
On Thursday, the rupee weakened by 26 paise to settle at 95.99 against the US dollar.
"We expect the Reserve Bank to lean against the move closer to 96," Anindya Banerjee, Head of Commodity and Currency Research, Kotak Securities.
Banerjee further noted that India's adjustment has been orderly, with reserves near $781 billion and a policy mix that has contained the pass-through of energy prices better than most importers.
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"The next triggers are US data on durable goods and consumer inflation expectations, and any official word on the Hormuz talks. Markets price roughly a two-in-three chance of a Fed hike in October; a reopening of Hormuz, which would pull oil, freight and product premiums down together, is not priced," he said.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading at 101.28.
Brent crude futures, the global oil benchmark, were trading lower by 0.85% at $105.69 per barrel.
On the domestic equity market front, Sensex rose 86 points to 73,672.98, while the Nifty was trading up 18.80 points to 23,080.45.
Foreign Institutional Investors (FIIs) offloaded equities worth ₹5,027.36 crore on a net basis on Thursday, according to exchange data.