The rupee extended its gains versus the US currency on Wednesday, inching above the 79.50 mark on dollar inflows.
The rupee was trading at 79.42 per dollar in early trade, up from 79.66 on Monday. The local unit had opened at 79.56. Indian financial markets were shut on Tuesday.
"Rupee has managed to nudge higher despite the U.S. inflation event risk and weak Asian cues," a trader at a state-run bank, said. "It is just that the market is reluctant to test 79.80-80.00. Plus, yesterday's holiday means that there will be two days of dollar inflows."
The rupee's Asian peers were trading mostly lower ahead of the key U.S. inflation data. The data, due on Wednesday, is expected to show a decline in headline inflation on an annual basis and will shape expectations on the size of the interest rate hike the Federal Reserve will deliver at its September meeting.
Expectations of a 0.75 percentage point rate hike have climbed following a stellar U.S. jobs report last Friday.
The Indian currency, so far, has managed to hold above the 80 level, amid expectations that the Reserve Bank of India will not allow the currency to depreciate significantly below the psychologically important level.
RBI Governor Shaktikanta Das, in his policy address last Friday, said the central bank was watchful of rupee stability and its interventions using foreign exchange reserves have helped contain volatility in the currency.
Rupee forward premiums were little changed with the 1-year implied yield hovering near 3%. NSE (National Stock Exchange) USD/INR futures rose, while open interest on near-month contracts was little changed.
Indian shares, meanwhile, slipped, tracking broad declines in Asian stocks.