MUMBAI: The rupee rose 18 paise to 96.18 against the US dollar in early trade on Friday, on slight cooling in crude oil prices, tentative signs of easing geopolitical tensions, and active RBI intervention in the market.
Forex traders said markets found some comfort after comments from US Secretary of State Marco Rubio hinted that diplomatic talks linked to the Iran situation were moving in a constructive direction.
Although Rubio warned that he does not want to be "overly optimistic," the comments were enough to calm markets temporarily.
As a result, Brent crude oil cooled near the USD 104 mark, reducing immediate pressure on the rupee, traders said.
At the interbank foreign exchange market, the rupee opened at 96.30 against the US dollar, then touched 96.18 in early trade, up 18 paise from its previous close.
On Thursday, the rupee rebounded 50 paise from its all-time closing low to settle at 96.36 against the US dollar.
"Another major reason behind the rupee's recovery is growing confidence around RBI's planned USD 5 billion buy-sell swap auction on 26th May.
The move is expected to inject more rupee liquidity into the banking system and improve RBI's ability to manage excessive currency volatility," CR Forex Advisors MD Amit Pabari said.
This reinforces market confidence that the central bank remains prepared to actively smooth volatility if global conditions deteriorate further, Pabari added.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading at 99.24, down 0.01 per cent.
Brent crude, the global oil benchmark, was trading up 1.59 per cent USD 104.21 per barrel in futures trade.
"Any supportive measures like RBI swaps or positive deal flows could strengthen the rupee, while absence of such triggers may gradually push the pair towards 97.00 levels," Pabari said, adding that geopolitical tensions remain the key risk factor.
A sustained close below 94.80 would be needed to signal a broader trend reversal in the rupee, he said.
On the domestic equity market front, Sensex climbed 332.39 points to 75,507.09 in early trade, while the Nifty was trading up 84.60 points to 23,747.40.
Foreign Institutional Investors offloaded equities worth Rs 1,891.21 crore on a net basis on Thursday, according to exchange data.
Meanwhile, Commerce and Industry Minister Piyush Goyal on Thursday said the government is considering several steps to contain the widening Current Account Deficit (CAD) amid a weakening rupee and widening trade deficit.
