Extending gains for the second day, the rupee on Wednesday rose by 20 paise to settle at 71.65 against the US dollar in line with other Asian currencies, helped by lower crude oil prices.
At the interbank foreign exchange market, the local currency opened at 71.76 to the US dollar. During the day, the local unit saw a high of 71.59 and a low of 71.79.
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The domestic unit finally settled at 71.65, up 20 paise from its previous close. The rupee had settled at 71.85 against the US dollar on Tuesday.
"The rupee opened on a flat note and witnessed volatility after the RBI, yesterday, announced two long-term repo operations (LTROs) for three-year tenors worth Rs 25,000 crore each to be conducted on March 2 and March 9," said Gaurang Somaiyaa, Forex & Bullion Analyst, Motilal Oswal Financial Services.
Also, forex traders said, easing crude oil prices supported the local unit.
The global crude benchmark Brent futures fell 1.40 per cent to trade at USD 54.18 per barrel.
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"Indian rupee, in line with other Asian currencies, gained amid lower dollar index and crude oil prices," said V K Sharma, Head PCG and Capital Markets Strategy, HDFC Securities.
On the domestic front, market participants will be keeping an eye on third quarter GDP number and better-than-expected number could extend gains for the currency, traders said.
Moreover, investor sentiment remained fragile amid concerns over the impact of coronavirus outbreak on global economy, forex traders said.
The number of deaths due to novel coronavirus epidemic in China climbed to 2,715 with 52 new fatalities on Wednesday while the confirmed cases rose to 78,064.
Meanwhile, foreign institutional investors remained net sellers in the Indian capital markets, offloading equities worth Rs 3,336.60 crore on a net basis on Wednesday, according to provisional exchange data.
The dollar index, which gauges the greenback's strength against a basket of six currencies, rose by 0.11 per cent to 99.07.
"Forex markets are pricing dollar inflows next weeks on back SBI Cards IPO, starting from March 2," said V K Sharma, Head PCG and Capital Markets Strategy, HDFC Securities.
Sharma further said that "RBI's announcement of two more long term repo is attracting bond inflows. The RBI will offer USD 3.5 billion each in the next two LTROs for three year tenors next week".
The 10-year Indian government bond yield was at 6.35 per cent.
The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 71.8598 and for rupee/euro at 78.0067. The reference rate for rupee/British pound was fixed at 92.9751 and for rupee/100 Japanese yen at 64.82.
On the equity front, the 30-share BSE gauge settled 392.24 points, or 0.97 per cent, lower at 39,888.96. Similarly, the broader NSE Nifty plummeted 119.40 points or 1.01 per cent to end at 11,678.50.
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