The rupee gave up almost all of initial gains to end at 74.40 against the US dollar on Tuesday, as against its previous close of 74.43. It moved within a narrow 16-paise range, between 74.25 and 74.41, against the greenback during the four-hour session, having begun the day mildly stronger at 74.34 compared to its previous close of 74.43. While sharp gains in domestic equities and foreign fund inflows, supported the domestic currency, weakness in the greenback overseas leading to dollar buying and rising oil rates limited its appreciation, say analysts.
Benchmark equity indices S&P BSE Sensex and NSE Nifty 50 climbed 1.27 per cent and 1.24 per cent respectively, fuelled by broad-based gains. The Sensex settled at 40,261.13 for the day and the broader Nifty at 11,813.50. Foreign institutional investors emerged bullish on the country's capital market, net purchased shares worth Rs 740.61 crore on Monday, according to provisional exchange data.
The dollar index - which gauges the US currency against six peers - was last seen trading 0.59 per cent lower, receding from a one-month high registered the previous day.
The world's largest economy started voting for presidential elections, after US President Donald Trump and Democratic rival Joe Biden made a last-minute push for votes in battleground states on Monday.
Their campaigns were wary of possible legal disputes that could delay a clear outcome, but a wave of risk appetite swept through markets.
Currency markets seemed to be tilting towards a victory for Mr Biden. Analysts believe a Biden win would weaken the dollar, because the former vice-president is expected to spend big on stimulus and to take a freer approach to trade, boosting other currencies at the dollar's expense and potentially pushing up bond yields.
Crude oil prices soared more than 3 per cent on Tuesday, in anticipation of tightening supply ahead. The Organization of the Petroleum Exporting Countries and allies including Russia, a group called OPEC+, cut oil output from May to support prices and reduced the reduction to 7.7 million barrels per day (bpd) in August.
Brent crude futures - the global benchmark for crude oil - were last seen trading 3.00 per cent higher at $40.14 per barrel, having earlier risen to as high as $40.45 per barrel on Tuesday.
"Rupee consolidated in a narrow range for the second successive session ahead of the important US Presidential election results. Expectation is that the announcement of the result could take some time but we could get some bit of clarity by this weekend," said Gaurang Somaiyaa, forex and bullion analyst at Motilal Oswal Financial Services.
"Market participants are also cautious ahead of the FOMC (Federal Open Market Committee) policy statement that will be released later this week," he added.
At the current level, the rupee is off 3.26 per cent an all-time low of 76.91 registered in April, but still down 4.23 per cent for the year so far.