The rupee strengthened slightly on Tuesday on bunched up dollar inflows after a four-day weekend and as shares hit a second consecutive record high, but broader gains were capped by good greenback demand from oil importers.
Trading in the foreign exchange market resumed after two trading holidays on Friday and Monday, leading to bunched up dollar inflows, helping the rupee appreciate.
The BSE Sensex and Nifty, which were open for trading on Monday, hit second consecutive record highs on Tuesday on the back of good institutional demand, both from home and abroad.
Equity traders cited optimism after Prime Minister Narendra Modi vowed to fire up the bureaucracy to deliver results on Friday, although the impact was limited as he did not announce any sweeping market reforms.
"There was expectation that the rupee will gain today due to bunched up inflows but there was some oil demand in the market which limited the gains," said Uday Bhat, a foreign exchange dealer with UCO Bank.
"I don't expect the rupee to appreciate much from here. However, the close below 60.70 can technically take the unit to 60.20 levels," he added.
The partially convertible rupee closed at 60.6750/6850 per dollar compared with 60.76/77 on Thursday. The unit moved in a tight band of 60.6550 to 60.7825 during the session.
Traders broadly expect the unit to remain in a 60.20 to 61.20 range during this week.
Data on Monday showing India's trade deficit widening to $12.23 billion in July from $11.76 billion in June had little impact given it came largely in line with market expectations, traders added.
Traders will continue to monitor movements in other Asian currencies and shares for near-term direction while also keeping an eye on the progress on the Ukraine and Iraq front.
In the offshore non-deliverable forwards, the one-month contract was at 61.01 while the three-month contract was at 61.59.