The rebounded by 18 paise to 70.71 against the US dollar in early trade on Thursday, a day after the Reserve Bank of India cut the key interest rate by 35 basis points.
At the interbank foreign exchange, the rupee witnessed high volatility against the US dollar. The local unit opened strong at 70.80 and touched a high of 70.71 and a low of 70.83 against the American currency in early trade on Thursday.
The domestic unit was trading at 70.87 against the dollar at 1010 hrs.
Rupee had settled at 70.89 against the American currency on Wednesday.
Forex traders said rupee is trading in a narrow range tracking cautious opening in domestic equities. Besides, foreign fund outflows and rising crude oil prices also weighed on local currency.
The Reserve Bank of India (RBI) on Wednesday cut interest rate by a rare 35 basis points -- the fourth successive reduction -- to a nine-year low, in an attempt to boost an economy growing at its slowest pace in nearly five years.
More From This Section
"While we believe that RBI's response could have been more aggressive with a 50 bps cut, the policy undertone remains dovish with growth revival assuming the highest priority... Also, it is pertinent to note that in the absence of fiscal expansion, monetary policy is the key lever to support the business cycle," Edelweiss Securities said in a research note.
Meanwhile, foreign institutional investors (FIIs) remained net sellers in the capital markets, pulling out Rs 383.66 crore on Wednesday, according to provisional exchange data.
The dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.01 per cent to 97.53.
Brent crude futures, the global oil benchmark, rose 2.74 per cent to trade at USD 57.77 per barrel.
Domestic bourses opened on a cautious note on Thursday with benchmark indices Sensex trading 37.01 points higher at 36,727.51 and Nifty up 5.75 points at 10,861.25.
The 10-year government bond yield was at 6.37 per cent in morning trade.