MUMBAI: The rupee rose 5 paise to 96.11 against the US in early trade on Wednesday amid heightened tensions in West Asia and a weaker greenback.
Higher crude oil prices and FII outflows prevented a sharper rise in the local unit while a positive opening in the domestic equity markets lent support, forex traders said.
At the interbank foreign exchange market, the rupee opened at 96.12 and inched up to 96.11, up 5 paise from its previous close.
The unit depreciated 48 paise to close at 96.16 against the US dollar on Tuesday.
Iran on Wednesday threatened to halt all energy exports from West Asia over the US reimposing a naval blockade on the Islamic Republic.
In a statement carried by the Iranian state television, the paramilitary Revolutionary Guard threatened oil and gas exports from the region. "The export of oil and gas from the region will be either for everyone or for no one," it said.
"The rupee came under significant pressure on Tuesday, slipping past the 96-level for the first time since May as a combination of surging crude oil prices, higher US Treasury yields, and geopolitical tensions triggered broad dollar demand. Brent climbed to its highest level in over a month after the US-Iran conflict intensified," Anil Kumar Bhansali, Head of Treasury and Executive Director, Finrex Treasury Advisors LLP, said.
The rupee is set to trade in the range of 95.90-96.50, he said.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading at 100.81, down 0.11 per cent.
Brent crude, the global oil benchmark, rose by 1.10 per cent to USD 85.66 per barrel in futures trade.
On the domestic equity market front, stock markets rebounded in early trade with the Sensex rising 553 points to 77,603.57 and the Nifty up 148.15 points to 24,198.40.
Foreign Institutional Investors on Tuesday offloaded equities worth Rs 739.69 crore in the domestic equity market, according to exchange data.
On the domestic macroeconomic front, wholesale price inflation shot up to 9.87 per cent in June, from 9.68 per cent in May, led by a sharp spike in prices of food and non-food items.
Net direct tax collection grew 16.40 per cent to over Rs 6.51 lakh crore till July 13 this fiscal year, driven by higher corporate tax mop-up, government data showed on Tuesday.