MUMBAI: The rupee appreciated 20 paise to 94.20 against the US dollar in early trade on Friday on optimism that trade negotiations between India and the United States are set to gain momentum.
Forex traders said the rupee opened on a positive note with oil prices remaining supportive and foreign inflows improving. The overall bias remains positive for the rupee, they said.
Moreover, Indian Foreign Secretary Vikram Misri on Thursday said trade was a major subject of discussion between Prime Minister Narendra Modi and US President Donald Trump, with both leaders directing their negotiators to finalise the proposed trade pact at the earliest.
At the interbank foreign exchange market the rupee opened at 94.30, then gained momentum and touched 94.20, registering a gain of 20 paise from its previous all-time closing low.
On Tuesday, the rupee settled 10 paise higher at 94.40 against the US dollar.
"The RBI is expected to use incoming dollar flows to rebuild forex reserves and gradually reduce its large forward dollar book, estimated at around USD 110 billion. Market participants believe the central bank may have already purchased USD 3–5 billion over the last two sessions," CR Forex Advisors MD - Amit Pabari said.
Pabari further said that this is not a sign of concern. Rather, it reflects the RBI taking advantage of favourable market conditions. "However, such buying can naturally slow the pace of rupee appreciation, making the move stronger but more gradual," he said.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading at 100.92, up 0.08 per cent.
Brent crude, the global oil benchmark, was trading lower by 0.85 per cent at USD 79.17 per barrel in futures trade.
On the domestic equity market front, Sensex tumbled 786.58 points to 76,624.90 in early trade, while the Nifty declined 210.95 points to 23,959.80.
Foreign institutional investors offloaded equities worth Rs 1,025.20 crore on a net basis on Thursday, according to exchange data.
Misri's comments came a day after Modi and Trump held wide-ranging talks for the first time in 16 months on the margins of the G7 Summit in an attempt to rebuild the strained bilateral ties.
Misri said significant progress has been made on the conclusion of the interim trade pact and that US Trade Representative, Jamieson Greer, will be visiting India next week to take forward the discussions.