Mumbai, Jun 9 (PTI) The rupee appreciated 2 paise to close at 85.66 against the US dollar on Monday, supported by a firm trend in domestic equities and foreign capital inflows.
However, surging global crude oil prices restricted the rise in the domestic unit, traders said.
The rupee benefitted from the initial reaction to the RBI rate cut, but the aggressive rate cut narrows the interest rate differential with global peers, they added.
"The rupee traded with a positive bias on positive domestic markets and a weak US Dollar. Optimism over talks between the US and China led to a rise in risk appetite in global markets. However, rising crude oil prices capped sharp gains," Anuj Choudhary - Research Analyst at Mirae Asset Sharekhan, said.
At the interbank foreign exchange, the domestic unit witnessed a volatile trading session. It opened at 85.61 and moved between a high of 85.45 and a low of 85.72 against the greenback.
The local unit pared some of its initial gains and settled in positive territory, 2 paise higher at 85.66 against the American currency.
On Friday, the rupee surged 11 paise to close at 85.68 against the US dollar, after the Reserve Bank cut the repo rate by a higher-than-expected 50 basis points to prop up growth.
"The rupee traded neutral...as the RBI’s 0.50 per cent rate cut provided some support, offsetting pressure from rising crude oil prices over the past week. Looking ahead, the US CPI data due this week will be a key driver for the dollar index, with the rupee expected to remain range-bound between 85.25 and 86.00," Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities, said.
In the domestic equity market, the 30-share BSE Sensex surged 256.22 points, or 0.31 per cent, to close at 82,445.21, while the Nifty rallied 100.15 points, or 0.40 per cent, to 25,103.20.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading lower by 0.35 per cent at 98.84.
Brent crude, the global oil benchmark, rose 0.24 per cent to USD 66.63 per barrel in futures trade.
Foreign institutional investors (FIIs) purchased equities worth Rs 1,992.87 crore on a net basis on Monday, according to exchange data.
"We expect Rupee to trade with a slight negative bias on rising crude oil and other commodity prices. However, a positive tone in the domestic markets, weak US dollar and FII inflows may support the rupee. Investors may now focus on the inflation data report from the US this week. USD/INR spot price is expected to trade in a range of Rs 85.40 to Rs 86," Choudhary said.