The rupee snapped its five-day losing streak to close higher by 20 paise at 70.69 against the US dollar on Thursday tracking sharp gains in domestic equities after reports of rollback of a tax surcharge on foreign portfolio investors.
At the interbank foreign exchange, the rupee witnessed high volatility against the US dollar. The local unit opened strong at 70.80 and during the day touched a high of 70.55 and a low of 70.94 against the American currency.
The domestic unit finally settled up by 20 paise at 70.69 against the American currency. The rupee had settled at 70.89 against the US dollar on Wednesday.
Forex dealer attributed the uptick in the local currency to reports of rollback of recently imposed a higher tax on foreign portfolio investors, following which equity markets witnessed a sharp rally.
"This news came in as a big relief for the domestic currency as well as for equity markets. Huge short-covering rally was seen in the domestic equity markets," said V K Sharma, Head-PCG & Capital Market Strategy, HDFC Securities.
Sharma, however, added that the domestic unit will witness high volatility till official confirmation of the news comes.
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After the budget announcement to increase tax surcharge on super-rich including FPIs, foreign investors have sold equities worth USD 2.73 billion on a net basis till date, Sharma said.
Foreign institutional investors (FIIs) remained net sellers in the capital markets, pulling out Rs 383.66 crore on Wednesday, provisional data showed.
Market participants noted that the Reserve Bank of India's move on the key interest rates and comments on liquidity also provided support to the currency markets.
Brent crude futures, the global oil benchmark, climbed 1.14 per cent to USD 56.87 per barrel.
The dollar index, which gauges the greenback's strength against a basket of six currencies, inched up 0.02 per cent to 97.56.
Meanwhile, the 10-year government bond yield was at 6.40 per cent on Thursday.
On the domestic market front, the BSE Sensex soared 637 points while the NSE Nifty reclaimed the 11,000 level on Thursday amid reports that the government is likely to withdraw higher surcharge on foreign portfolio investors.
After gyrating 750 points during the day, the 30-share Sensex settled 636.86 points or 1.74 per cent higher at 37,327.36. It hit an intra-day high of 37,405.48 and a low of 36,655.41.
Meanwhile, Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 70.9553 and for rupee/euro at 86.2263. The reference rate for rupee/British pound was fixed at 79.5002 and for rupee/100 Japanese yen at 79.5002.