The rupee rose on Tuesday as the dollar weakened ahead of U.S. Federal Reserve Chairman's appearance before the U.S. Congress, though greenback demand from oil companies kept a check on any sharp gains.
The dollar slipped against major currencies on Tuesday, as investors braced for the possibility Ben Bernanke would hint at U.S. monetary stimulus measures during the first day of his two-day Congressional testimony.
A rally in the rupee from its record low of 57.32 to the dollar late last month has stalled, with global risk factors likely to determine the direction for the local currency in the near term, traders said.
"There was bidding from oil firms, but overall sentiment was dollar negative. As usual, the market is expecting something positive from Bernanke," said Vikas Babu Chittiprolu, a senior forex dealer with state-run Andhra Bank.
The partially convertible rupee closed at 55.1250/1450 per dollar, stronger than its Monday's close of 55.31/32.
Traders said the dollar demand from oil firms was easily supplied for by banks looking to sell ahead of any further weakening of the dollar in the near-term.
Oil companies are the largest buyers of dollars in the domestic currency market.
"I expect a range of 54.50 to 55.50 on the dollar/rupee in the near-term," Chittiprolu said.
Domestic factors could also come into play for the rupee.
Traders are awaiting the presidential elections on Thursday, given widespread expectations the government will announce long-stalled economic reforms afterwards, in what could boost foreign investor sentiment and flows into Indian markets.
On the economic front, weaker-than-expected rainfalls during the monsoon period are raising worries about inflationary pressures and the potential impact on rural consumption.
The one-month offshore non-deliverable forward contracts were at 55.36 while the three-month was at 55.96.
In the currency futures market, the most-traded near month contracts on the National Stock Exchange, MCX-SX and United Stock Exchange, all closed around 55.18 with a total volume of around $5.2 billion.