The rupee is trading at 55.52/54 in line with Friday's close of 55.54/55, after rising to a session high of 55.26 on dollar selling by exporters and corporates, but global risk aversion hurt demand for risk assets such as the rupee.
The Indian currency is still well off its record low of 56.52 hit on Thursday, as dollar demand from oil firms wanes at the start of the month amid lower crude oil prices.
Earlier, the rupee rose to its highest against the dollar in a week, despite a steep selloff in global risk assets, on the back of dollar sales by corporates and exporters, as well as the unwinding of long-dollar positions by banks.
The recovery comes after the unit hit a string of record lows against the dollar in the second half of May, with the latest on Thursday when it fell to as low as 56.52.
The rupee has been hit by a mix of global risk aversion at a time when India is facing steep economic and fiscal challenges.
However, some traders now say the currency may have hit a near-term bottom, despite remaining susceptible for more falls should external or domestic conditions worsen.
Traders say the Reserve Bank of India could intervene more aggressively, while perceptions the central bank could cut interest rates as early as this month may also contribute to a recovery in the rupee by helping boost a sagging economy.
"Participants are unwinding long dollar positions on expectations we have likely bottomed-out for now, though the external situation will be closely monitored for direction," said N. S. Venkatesh, treasurer at IDBI Bank.
