(Reuters) - The Indian rupee snapped four session of declines to close higher tracking slight weakness in the greenback, while traders pointed to the Reserve Bank of India selling dollars.
The partially convertible rupee ended at 81.6650 per dollar against its previous close of 81.84, having traded in a narrow range all day.
Some market participants pointed to the RBI selling dollars via public sector banks to keep the currency from falling to 82 per dollar.
Large dollar outflows are expected, particularly from oil companies which could prompt a sharp depreciation in the rupee, said a trader with a private bank. The central bank's move would help controlling currency volatility in that case, the trader said.
Meanwhile, the dollar index pulled back 0.3% from an overnight rally, after the safe-haven currency came in demand on worries over China's COVID flare-ups.
Beijing warned on Monday that it was facing its most severe test of the pandemic, with a surge in COVID cases sparking fresh restriction measures.
The offshore Chinese yuan rose 0.5% after previous session's heavy losses, with most Asian currencies and stocks making cautious gains.
Amid a lack of triggers, the minutes of the Federal Reserve's November meeting due on Wednesday during U.S. trading hours and core personal consumption expenditures (PCE) data next week would be key for currency traders in the near term.
The chances of a 50 basis point hike by the Fed next month were at 71%, while bets of a 75 bps increase went up slightly to 29% as compared to last week.
Since last week, a number of Fed officials have stuck to a hawkish tone, saying a pause in the rate hiking cycle was not in the vicinity as fighting inflation remained a priority.