The Indian rupee strengthened on Tuesday in thin trade as dollar selling by some foreign banks and slightly better-than-hoped trade numbers aided sentiment.
Trade deficit narrowed in January, helped by a 77 percent drop in imports of gold and silver while exports ticked up, improving the outlook for the country's fragile current account balance.
Trading volumes were lower for a second day as employees at state-run banks were absent on account of the two-day strike that started on Monday.
Although dealing rooms were operational, apart from some big banks, most refrained from trading as there were no retail flows, bringing volumes down to nearly half, dealers said.
"Trade data was definitely better than hoped, so that helped the rupee sentiment. (Fed Chair Janet) Yellen's testimony is clearly the key for all emerging markets now," said Vikas Babu Chittiprolu, a senior foreign exchange dealer with state-run Andhra Bank.
"I expect the rupee to open around 62.05 levels tomorrow as the bunched-up flows due to the two-day strike will hit. There is strong support for the dollar at 62.05, so the pair will move higher from there unless Yellen says the Fed will now pause and relook at its tapering, which is highly unlikely."
The partially convertible rupee closed at 62.22/23 per dollar compared with 62.43/44 on Monday. The pair moved in a range of 62.19 to 62.45 during the session.
Despite Friday's poor U.S. jobs data, Yellen is expected to give a balanced assessment of the world's largest economy which should suggest the reduction in the Fed's asset purchases remains on track.
The testimony will be critical in assessing how foreign funds will flow in the coming months both into the local share and debt markets.
Indian shares rose as Tata Motors rallied after its quarterly earnings surged on strong results at unit Jaguar Land Rover, while software services providers gained after an industry body predicted exports would improve.
In the offshore non-deliverable forwards, the one-month contract was at 62.51, while the three-month was at 63.36.
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