The Indian rupee recovered its opening losses to end largely flat against the dollar, while forward premiums declined more to slip below a key level.
The rupee closed at 81.6700 per U.S. dollar compared with 81.6850 in the previous session. The local unit had fallen to 81.8325 in opening trades, thanks largely to the Chinese yuan.
The offshore yuan fell to a two-week low of 6.2571 to the dollar following protests in China against the government's COVID policies. Chinese equities slipped.
The yuan managed a rebound following its drop and the rupee recovered alongside it. Indian equities reaching a record high and a fall in oil prices further helped the rupee.
Brent crude dropped below $81 for the first time since February on concerns over demand from China. India's benchmark Nifty 50 index reached a record high despite losses on Asian shares and U.S. equity futures.
Foreign investors have poured in almost $4 billion into Indian equities so far this month. The dollar index was hovering near 105.70.
Inflows, lower crude oil, softer dollar, and a stable domestic macro condition are likely to "support rupee’s appreciating side," Amit Pabari, managing director at CR Forex said.
Rupee forward premiums extended their recent decline with the 1-year implied yield falling below 2% for the first time in over ten years. The fall in the overnight cash USD/INR swap rate was among the main reasons for the fall in forward premiums, according to traders. (Reporting by Nimesh Vora; Editing by Janane Venkatraman)