The rupee rose by 12 paise to close at 79.78 against the US dollar on Monday due to a weak dollar in overseas markets and an improved appetite for riskier assets.
Stronger regional currencies also supported the rupee sentiment ahead of the US Fed policy decision on Wednesday.
Weak domestic equities and FII outflows, however, capped sharp gains.
At the inter-bank forex market, the local unit opened at 79.86 against the greenback and moved in a range of 79.70 to 79.87 in the day trade.
In the previous session, the rupee had closed at 79.90 against the American currency.
According to Dilip Parmar, Research Analyst, HDFC Securities, the Indian rupee started the week on the front foot following stronger regional currencies and weaker crude oil prices.
"We have entered the Fed week with markets back to their expectation of a 75 bps move on Wednesday from 100 bps a few weeks back," Parmar said, adding that spot USD/INR is having support at 79.30 and resistance remains around 80.10.
Jateen Trivedi, VP Research Analyst at LKP Securities said the rupee traded positive at 79.78 against the dollar as crude prices fell in Asian trade along with softness in dollar index.
"Rupee range can be seen between 79.60-79.95."
The dollar index, which measures the greenback's strength against a basket of six currencies, was down 0.38 per cent at 106.32.
Brent crude futures, the global oil benchmark, rose 1.25 per cent to $104.49 per barrel.
"We expect rupee to trade on a mixed to negative note on risk aversion in global markets amid concerns over global economic recovery, inflation and recession," Anuj Choudhary - Research Analyst at Sharekhan by BNP Paribas, said.
Experts believe the dollar may bounce back on expectations of a hawkish US Fed and an aggressive rate hike in the Federal Open Market Committee (FOMC) meeting later this week.
"Decline in India's forex reserves may also weigh on Rupee. India's forex reserves declined to $572.71 billion as of July 15, 2022 from $580.25 billion in the prior week," Choudhary said.
Markets may also take cues from foreign fund flows and decline in global crude oil prices.
USDINR spot price is expected to trade in a range of Rs 79.20 to Rs 80.80 in the next couple of sessions, Choudhary said.
On the domestic equity market front, the BSE Sensex ended 306.01 points or 0.55 per cent lower at 55,766.22, while the broader NSE Nifty declined 88.45 points or 0.53 per cent to 16,631.00.
Foreign Institutional Investors (FIIs) were net sellers in the capital market on Monday as they sold shares worth Rs 844 crore, as per exchange data.
