The rupee spurted by 41 paise to close at a nearly two-week high against the US dollar on Wednesday, tracking positive domestic equities and Asian currencies ahead of the US Federal Reserve's decision on interest rate hike.
FII inflows into capital markets and crude oil prices retreating to USD 99 per barrel level boosted the rupee sentiment, forex traders said.
At the interbank forex market, the local unit opened strong at 76.40 against the greenback and witnessed an intra-day high of 76.19 and a low of 76.44.
The rupee settled at 76.21, registering a rise of 41 paise over its previous close of 76.62.
"Rupee appreciated against US dollar taking cues from stronger Asian currencies and risk-on moods. Forex markets are little tepid ahead of Wednesday's Fed decision while US 10-year bond yields retraced after touching 2.20 per cent, the highest level since 2019," said Dilip Parmar, Research Analyst, HDFC Securities.
The US Federal Reserve likely to raise rates by 25bps, as well as penciling further such hikes this year amid higher inflation.
Spot USDINR could find support in the range of 76 to 75.70, while resistance is around 76.70, Parmar added.
"The Indian rupee appreciated against the US Dollar in line with gains in the Asian currencies and equities ahead of the Federal Reserve's policy statement," said Sriram Iyer, Senior Research Analyst at Reliance Securities.
The US dollar traded marginally weaker in Asian trade as risk appetite improved after Russian Foreign Minister Sergei Lavrov said peace talks with Ukraine were not easy but there was hope for a compromise.
According to Sugandha Sachdeva, Vice President - Commodity and Currency Research, Religare Broking Ltd, the Indian rupee has been able to nudge higher largely in line with the optimism seen in markets and renewed inflows in domestic equities.
"Sentiments have improved amid hopes that the conflict between Russia and Ukraine is likely to be resolved through diplomatic negotiations. Another key factor favouring the recent bout of appreciation in the domestic currency is the sharp retreat in crude oil prices from multi-year highs," Sachdeva said.
Crude prices have given up most of the geopolitical risk premium to drift lower even below the USD 100 per barrel mark, as the tensions have eased.
Markets are now looking forward to headlines around the US Fed's first interest rate hike in three years and the guidance on future tightening. Besides, cues from the resurgence of COVID cases in China will steer the rupee-dollar exchange rate, Sachdeva said.
"Rupee traded strong as relatively less outflow from FII's and weak crude prices below USD 99 helped the rupee trade stronger towards 76.30 compared to 76.55," said Jateen Trivedi, Senior Research Analyst at LKP Securities.
The undertone of the US Fed's statement will be keenly watched. Any hawkish stance shall add pressure on rupee and 76.75 will be tested again, whereas any dovish comments shall support rupee towards 76.00, Trivedi said.
Meanwhile, the dollar index, which measures the greenback's strength against a basket of six currencies, fell 0.38 per cent to 98.72.
Crude oil for the Indian basket fell sharply by around 12 per cent to USD 112 per barrel as the benchmark Brent crude traded at USD 100.24 per barrel, up by 0.33 per cent.
On the domestic equity market front, the BSE Sensex ended 1,039.80 points or 1.86 per cent higher at 56,816.65, while the broader NSE Nifty surged 312.35 points or 1.87 per cent to 16,975.35.
Foreign institutional investors turned net buyers in the capital market on Wednesday, as they bought shares worth Rs 311 crore on net basis, according to stock exchange data.
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