The rupee pulled back from a firm start and steadied on Thursday as shares trimmed gains and traders watched the dollar's movement overseas.
At 10:32 am, the partially convertible rupee was at 46.810/815 per dollar, off an opening high of 46.75, and little changed from Wednesday's close of 46.805/815.
"The rise in shares was already factored in, any stronger movement may take the rupee also higher," said a senior trader at a private bank, adding he expected a 46.70-46.90 range.
India's widening trade gap may eclipse forex market sentiment in the near term, but prospects of capital inflows and strong economic growth may keep the outlook for the rupee bright in the medium to long term, a strategist at Standard Chartered Bank told Reuters on Wednesday.
The trade deficit swelled in July to its biggest level in almost two years, putting further pressure on the current account and on the need for India to attract capital inflows to avoid pressure on its currency.
The BSE Sensex was trading 0.35 per cent higher, taking cues from strong Asian markets, and most Asian currencies were firm against the dollar.
The dollar was on the defensive on Thursday, retaining most of the losses sustained the previous day when upbeat data helped lure investors away from safe-haven currencies and assets.
The index of the dollar against six majors was down 0.02 per cent.
One-month offshore non-deliverable forward contracts were quoted at 46.99, weaker than the onshore spot rate.
In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange and MCX-SX were at 46.9650 and 46.9675 respectively.