The rupee is expected to strengthen against the US dollar at open on Friday as oil prices extended their recent slide to slip to their lowest since February.
The Reserve Bank of India (RBI) policy decision will set the intraday direction for the rupee, traders said.
The rupee will likely open at 79.15-79.20 per dollar, up from 79.47 in the previous session.
Brent crude on Thursday fell 2.8 per cent, taking its losses this month to over 14 per cent. Oil prices have come under pressure amid concerns over demand, pushing Brent crude to its lowest since before Russia's February invasion of Ukraine.
"The ongoing correction in oil prices will be a major relief for the rupee. Specially right now, when worries over the trade deficit are significant," a trader at a private sector bank said.
"Oil will help rupee to open higher and from there it will be down to what the RBI does."
The central bank is widely expected to increase the key interest rate. Economists polled by Reuters expect the hike to be between 25 basis points and 50 basis points.
Traders reckon that a smaller rate hike will put the rupee under pressure considering the recent hawkish rhetoric from US Federal Reserve officials.
Asian currencies were mostly higher on Friday, tracking the dollar index's decline to below 106. The US monthly jobs report due on Friday will be keenly watched to assess how the US labour market is faring and to gauge the outlook on the pace of future Fed rate hikes.
* One-month non-deliverable rupee forward at 79.36; onshore one-month forward premium at 20.06 paisa
* USD/INR NSE August futures closed at 79.54 on Thursday; August OTC premium at 14.5 paisa
* Dollar index up at 105.85 after slipping 0.8 per cent in the previous session
* Brent crude futures up 0.4 per cent at $94.5 per barrel after falling 2.8 per cent on Thursday
* Ten-year U.S. note yield at 2.69 per cent, India 10-yr bond yield at 7.16 per cent
* SGX Nifty nearest-month futures up 0.3 per cent at 17,455
* Foreign investors bought net 14.8 billion rupees worth of Indian shares on Aug. 3, according to BSE data