The rupee on Friday appreciated by 11 paise to close at a two-week high of 59.56 against the dollar on fag-end sales of the US currency by exporters amid a strong rally in local equities.
Even as sustained capital inflows supported the rupee gain, a smart recovery in the dollar overseas restricted the local currency's gains, a forex dealer said.
At the Interbank Foreign Exchange market, the rupee opened lower at 59.79 from the previous close of 59.67 and dropped further to 60.17 on dollar demand from importers, mainly oil refiners. The rupee touched a record low of 61.21 on July 8.
A recovery in the dollar index overseas after US Federal Reserve Chairman Ben Bernanke's comments on continuing the monetary stimulus also weighed in on the rupee. The dollar index was up 0.40 per cent against a basket of six other major currencies.
Amid talk of RBI intervention, the rupee later bounced back to a high of 59.55 as domestic shares climbed, before settling at 59.56, a rise of 11 paise or 0.18 per cent.
Subdued import of gold and silver in June pulled down the country's trade deficit to USD 12.2 billion even as exports contracted 4.56 per cent during the month.
"A combination of weak currency, subdued domestic demand and lower gold imports should reduce the current account deficit to around 4.3 per cent of GDP in FY14 from 4.8 per cent in FY13," said Nomura India economist Sonal Varma.
"However, we expect rupee depreciation to continue as financing the current account deficit will likely remain difficult."
The Sensex on Friday added 282.41 points, or 1.44 per cent, after Infosys, the country's second-largest software services exporter, kept its dollar revenue guidance unchanged.
The trading range for the spot USD/INR pair is expected to be within 59.40 to 60.20, said Pramit Brahmbhatt, CEO of Alpari Financial Services (India).