The rupee rose on Wednesday as domestic shares recovered from a five-day slump, though concerns about recent heavy foreign outflows and dollar demand from oil importers kept gains in the local currency in check.
Investors are also growing cautious ahead of the February industrial output data and March consumer inflation due on Friday, which will provide important cues ahead of the central bank's monetary review on May 3.
The Reserve Bank of India has cut interest rates twice already so far this year, but investors are split on whether the central bank will ease again next month.
"The cues are mixed. Headwinds are from the lack of confidence in macro fundamentals and risk of FIIs pull-out from the equity market," said Moses Harding, head of asset-liability management at IndusInd Bank.
"However, rupee gets strong support from very high premium and robust flows into debt capital account," Harding said.
The partially convertible rupee closed at 54.52/53 per dollar, marginally stronger compared with its Tuesday's close of 54.58/59. It traded in a 54.40-54.5650 band in the session.
Debt and currency markets will be closed on Thursday for a local holiday.
Foreign investors have now sold a net total of $156 million in Indian shares in the five trading sessions to Tuesday and a net total of $1 billion in domestic debt over the same period, according to regulatory data.
Dollar/rupee forward premiums continue to remain high, though it came off near 14-year highs hit on Tuesday.
In the offshore non-deliverable forwards, the one-month contract was at 54.82 while the three month was at 55.45.
In the currency futures market, the most-traded near-month dollar/rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all closed at about 54.65, with a total traded volume of $3.6 billion.