Mumbai: After a brief overnight fall, the rupee gained ground against the dollar and ended 5 paise higher at 66.97 on improvement in trade deficit data and easing fears of rate hike by the Federal Reserve.
The rupee gave up its initial strong gains to trade weak briefly after the dollar attracted strong demand from importers for settlement purposes.
Buoyancy in domestic equity markets alongside robust capital flows predominantly helped the local unit to regain its strength after overcoming initial volatility.
Weakness in the greenback overseas against the backdrop of sluggish US macro data outcome also helped the home currency move higher.
Conflicting signals from Fed officials on interest rates largely kept forex market highly volatile in recent past, a forex dealer commented.
The rupee opened on a firm footing at 66.86 from Thursday's closing value of 67.02 at the interbank foreign exchange (forex) market and firmed up further to 66.84 on fresh bouts of dollar selling by exporters.
However, a sudden bouts of dollar demand spillover immediately reversed the strong recovery momentum and drifted sharply to hit a intra-day low of 67.03 in slightly nervous trade before rebounding to end at 66.97, showing a gain of five paise, or 0.07 per cent.
It settled below the psychological 67 mark, falling 13 paise to hit an over two-week low of 67.02 on Thursday.
On the global front, the US dollar traded weak against its major trading parters in the aftermath of disappointing US monthly retail sales data amid renewed expectations that the US central bank may keep borrowing costs on hold for the remainder of this year.
On the macro front, exports dipped 0.3 per cent to $21.51 billion, contracting for the second month in a row, owing to a decline in shipments of products like petroleum and leather.
The country's imports too contracted by 14 per cent to $29.91 billion, leaving a trade deficit of $7.67 billion in August, which is the lowest figure in three months.
Meanwhile, Finance Minister Arun Jaitley on Friday expressed hope that the Reserve Bank of India will keep in mind the decline in retail inflation while deciding on interest rates in its upcoming monetary policy review on October 4.
The US dollar index, which measures the greenback's strength against a trade-weighted basket of six major currencies, was up 0.35 per cent at 95.61.
The RBI fixed the reference rate for the dollar at 66.8804 and the euro at 75.1535.
In cross-currency trades, the rupee bounced back against the pound sterling to end at 88.20 from 88.61 and also recovered against the euro to finish at 75.15 from 75.34 earlier.
It, however, remained under selling pressure against the Japanese yen and settled lower at 65.73 as compared to 65.55 per 100 yens the previous day.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
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