The rupee gained 9 paise to 95.65 against the US dollar in early trade on Friday, supported by the weakening of the American currency in overseas markets.
At the interbank foreign exchange, the rupee opened at 95.69 before rising to 95.65, up 9 paise from its previous close.
On Thursday, the rupee pared its initial gains and settled 1 paisa lower at 95.74 against the US dollar.
Weak dollar offers support, crude prices remain a concern
Forex traders said the softer dollar was supporting the rupee, although elevated crude oil prices continued to pose a challenge for India.
Meanwhile, RBI Governor Sanjay Malhotra has indicated that the central bank expects at least USD 80 billion in foreign currency inflows.
According to traders, the governor's statement offered some reassurance, but higher oil prices, geopolitical uncertainty and a structurally reduced foreign presence continue to offset fresh dollar inflows.
"Governor Sanjay Malhotra indicated that the central bank expects at least USD 80 billion of foreign currency inflows from the measures announced earlier this year to attract dollars into India. So far, around USD 56.85 billion has already been mobilised, including USD 52.3 billion through FCNR(B) deposits," CR Forex Advisors MD - Amit Pabari said.
Rupee yet to benefit significantly from inflows
Pabari said the current inflows have not produced the kind of currency appreciation seen during the FCNR(B) scheme of 2013.
"However, Unlike the famous FCNR(B) scheme of 2013, which sparked an immediate double-digit appreciation in the rupee, this year's inflows have not translated into meaningful currency strength. Since the RBI announced these measures in June, the rupee has barely responded," Pabari added.
The dollar index, which measures the greenback against six major currencies, was down 0.15 per cent at 98.74, its lowest level since May.
Oil prices, Middle East tensions remain in focus
Brent crude, the global oil benchmark, was trading 0.23 per cent lower at USD 93.56 per barrel in futures trade.
"The conflict has already disrupted more than 20 per cent of the region's refining capacity, while the Strait of Hormuz remains shut, restricting fuel exports from one of the world's most important energy routes," Pabari added.
Sensex, Nifty edge lower
On the domestic market, the Sensex was down 25.97 points at 77,506.51, while the Nifty slipped 5.75 points to 24,223.10 in early trade.
Foreign institutional investors sold equities worth Rs 583.36 crore on a net basis on Thursday, according to exchange data.