The rupee appreciated 5 paise to close at 73.58 against the US dollar on Wednesday, propped up by sustained foreign fund inflows and a weak greenback overseas. Strong domestic equities also strengthened investor sentiment, traders said.
At the interbank forex market, the rupee opened at 73.49 against the US dollar and witnessed an intra-day high of 73.48 and a low of 73.60.
The local unit finally closed at 73.58 against the American currency, registering a gain of 5 paise over its previous close. On Tuesday, the rupee had depreciated by 8 paise to end at 73.63. The dollar index, which gauges the greenback's strength against a basket of six currencies, slipped 0.35 per cent to 90.15.
"The currency market is very lacklustre and the focus is on tonight's Fed policy. The hopes of a dovish Fed have kept dollar bulls on sidelines. In our view, the global optimism over rolling out of coronavirus vaccine and the hopes of another US fiscal stimulus package may push USD/INR spot towards 73.25. "Also, RBI is not very aggressive with its intervention. So, consistent trading below 73.25 will push the price towards 73 zone, while 74 will act as a strong resistance," said Rahul Gupta, Head of Research- Currency, Emkay Global Financial Services. On the domestic equity market front, BSE Sensex ended 403.29 points or 0.87 per cent higher at 46,666.46, while NSE Nifty rose 114.85 points or 0.85 per cent to 13,682.70 -- record closing for both the benchmarks.
Foreign institutional investors maintained their buying momentum, purchasing shares worth a net Rs 1,981.77 crore on Wednesday, according to exchange data. Brent crude futures, the global oil benchmark, rose 0.26 percent to USD 50.89 per barrel.
"The Dollar Index was down 0.32 percent at 90.18 this Wednesday afternoon trade in Asia, lingering near its lowest level in over two years ahead of the Fed's policy review where the US central bank could provide forward guidance on asset purchases," said Sriram Iyer, Senior Research Analyst at Reliance Securities.
Meanwhile, risk appetite improved in the market amid reports of progress on reaching a deal on the coronavirus relief bill in the US House of Representatives.
"Market sentiments improved on optimism that talks over fiscal stimulus in US are progressing and rollout of vaccine strengthened hopefulness that surging infection cases may be checked. Furthermore, consistent FII inflows supported Rupee. Rupee may trade in the range of 73.0 to 74.0 in next couple of sessions," said Saif Mukadam, Research Analyst, Sharekhan by BNP Paribas.
According to Devarsh Vakil, Deputy Head of Retail Research, HDFC Securities, the gain in rupee was in line with other Asian currencies.
"The weakness in dollar index ahead of FOMC meeting, foreign fund inflows and risk-on sentiments pushed rupee higher on Wednesday. The dollar index continues to trade near the lows of the year. If dollar index were to break the crucial support of 90, that would enthuse Rupee bulls," Vakil said. Technically, spot USD-INR is having support at 73.40, and resistance at 73.90, Vakil added.