The rupee rallied 73 paise to breach the 73-mark against the US dollar on Tuesday, supported by liquidity-boosting measures announced by the RBI.
A weak greenback overseas and a positive trend in the equity markets further supported the local currency, forex traders said.
At the interbank forex market, the domestic unit opened at 73.18 against the US dollar and shuttled between 72.75 and 73.19.
It finally finished at 72.87, up 73 paise from its previous close of 73.60.
The dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.25 per cent lower at 91.91.
The Reserve Bank on Monday announced a host of steps, including term repo operations totalling Rs 1 lakh crore in mid-September to ease pressure on liquidity and maintain congenial financial conditions with a view to ensuring sustainable recovery of economic growth.
It also said the rupee’s recent appreciation has helped contain imported inflationary pressures, which many saw as a signal that the central bank may go slow on dollar purchases.
On the domestic equity markets front, the BSE Sensex closed 272.51 points or 0.71 per cent higher at 38,900.80. The NSE Nifty advanced 82.75 points or 0.73 per cent to settle at 11,470.25.
Foreign institutional investors were net sellers in the capital market as they offloaded shares worth Rs 3,395.49 crore on Monday, according to exchange data.
Brent crude futures, the global oil benchmark, rose 1.15 per cent to USD 45.80 per barrel.
“Rupee rose following fund inflows in Indian equities and weakness in the dollar against its major crosses,” said Gaurang Somaiya, Forex and Bullion Analyst, Motilal Oswal Financial Services.
According to Sriram Iyer, Senior Research Analyst, Reliance Securities, “The US Dollar continued to extend losses this Tuesday as investors continued to exit the greenback on the back of a dovish Fed.”
Moreover, the local unit also gained amid speculation that the RBI could be more unrestricted towards rupee appreciation after it said a strong rupee is helping contain imported inflationary pressures, Iyer said.
Traders said the next biggest trigger point could be the non-farm payrolls data from the US this Friday.
“Indian rupee continued with positive momentum on the first day of the September month. Even after weaker than expected economic growth number, rebound in August PMI numbers suggest recovery going ahead,” said Devarsh Vakil, Deputy Head Retail Research, HDFC Securities.
Vakil noted that the weakness in broad-based dollar index, dollar inflows and the central bank’s focus on curbing imported inflation and staying away from dollar buying intervention supported the rupee.
“Technically, USD-INR pair has minor support near 72.50 level and strong support near 72.00 levels while on higher side resistance shifted from 75.50 to 74.50,” he said.
Meanwhile, India’s manufacturing sector activity re-entered the growth territory in August after four months, driven by a rebound in production volumes and new work, amid an improvement in customer demand following the resumption of business operations, PMI data showed.
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