The rupee pared initial losses to finally settle 4 paise higher at 83.48 against the U.S. dollar on Friday, tracking a strong rebound in domestic equities.
Forex traders said the domestic currency fell in early trade on risk aversion in global markets amid geopolitical tensions in the Middle East.
However, the rupee recovered on reports of the RBI intervention to defend a sharp fall in the local unit, they added.
At the interbank foreign exchange market, the local unit opened at 83.58 against the greenback. The unit hit an intra-day high of 83.46 against the greenback.
The domestic unit finally settled at 83.48 (provisional) against the dollar, 4 paise higher from its previous close.
On Thursday, the rupee rebounded from its all-time low level and closed 9 paise higher at 83.52 against the U.S. dollar.
"Reports that Iran said that there was no direct attack and the explosion was due to activity of the Iranian air defence system, which also aided the recovery in the rupee as well as domestic equities. The U.S. Dollar rose on hawkish comments from Fed officials and safe-haven demand," said Anuj Choudhary Research Analyst, Sharekhan by BNP Paribas.
Choudhary further noted that the rupee is likely to remain slightly weak due to geopolitical uncertainty in the Middle East, which may keep the risk-off sentiments intact.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.08% lower at 106.06.
Brent crude futures, the global oil benchmark, fell 0.31% to $86.84 per barrel.
"Safe-haven demand for the US Dollar and surge in global crude oil prices may also pressurise the rupee. However, any intervention by RBI to defend the domestic currency may support the rupee at lower levels. USD/INR spot price is expected to trade in a range of ₹83.30 to ₹83.80," he added.
On the domestic equity market front, the equity benchmarks witnessed heavy volatility. After opening on a negative note, the indices pared their losses and settled in positive territory.
Sensex advanced 599.34 points, or 0.83%, to settle at 73,088.33 points. The Nifty rose 151.15 points, or 0.69%, to close at 22,147.00 points.
Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Thursday as they offloaded shares worth ₹4,260.33 crore, according to exchange data.
