The rupee recovered 14 paise to close at 83.37 (provisional) against the US dollar on Wednesday, tracking strong buying in domestic equities and lower crude oil prices in international markets.
However, a surging greenback against major crosses overseas and fresh foreign fund outflows restricted gains in the local currency, forex traders said.
At the interbank foreign exchange market, the local unit opened at 83.50 and touched the intra-day peak of 83.28 against the domestic unit during the session. It finally settled at 83.37 (provisional) against the dollar, registering a gain of 14 paise from its previous close.
On Tuesday, the domestic currency plunged 37 paise to settle at 83.51 against the dollar.
Anuj Choudhary, Research Analyst at Sharekhan by BNP Paribas, said the rupee appreciated as domestic markets recovered some losses of the previous day and reports of intervention by the RBI.
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"...a recovery in the US dollar and disappointing macroeconomic data capped sharp gains," he said, adding that the rupee is expected to trade with a slight negative bias on recovery in the US dollar and selling pressure from foreign investors.
India's service sector growth eased to a five-month low in May amid fierce competition, price pressures and a severe heatwave, even as new orders from international markets expanded at the steepest pace in a decade, according to a monthly survey released on Wednesday.
The seasonally adjusted HSBC India Services Business Activity Index fell to 60.2 in May from 60.8 a month earlier, its lowest mark since last December.
According to analysts, a weak tone in global crude oil prices and further intervention by the RBI may support the rupee. Also, investors are likely to move cautiously ahead of the RBI's monetary policy later this week.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.23 per cent higher at 104.29.
Brent crude futures, the global oil benchmark, inched up 0.06 per cent to $77.57 per barrel.
"...OPEC+ decision has somewhat darkened the outlook for crude oil demand ahead, triggering sharp sell-off in WTI and Brent counters, which are down 4 per cent in last two sessions and fallen 9 per cent in last seven days," said Mohammed Imran, Research Analyst, Sharekhan by BNP Paribas.
On the domestic equity market, the 30-share BSE Sensex climbed 2,303.19 points, or 3.20 per cent, to close at 74,382.24. The broader NSE Nifty soared 735.85 points or 3.36 per cent to 22,620.35.
Foreign investors were net sellers of Indian equities on Monday as they offloaded shares worth ₹12,436.22 crore on a net basis. FIIs bought shares worth ₹26,776.17 crore and sold equities worth ₹39,212.39 crore in the cash segment.