Rising crude oil prices and foreign fund outflows weighed on the domestic currency.
Mumbai: The rupee appreciated by 16 paise to 68.79 against the US dollar in opening trade on Wednesday, driven by positive opening in domestic equities and weakening of the greenback in overseas markets.
The rupee opened strong at 68.83 at the interbank forex market then gained further ground to touch 68.79 per dollar, displaying gains of 16 paise over its previous close.
On Tuesday, rupee had settled at 68.95 against the US dollar.
"Dollar might be under pressure as the growth in the manufacturing sector slowed down to near a 4-year low," Angel Broking said in a research note Wednesday and added that rupee is expected to "move sideways".
Forex dealers said, selling of the American currency by exporters supported the rupee.
However, rising crude oil prices and foreign fund outflows weighed on the domestic currency.
Brent crude, the global benchmark, was trading at 62.61 per barrel higher by 0.34 per cent.
Foreign institutional investors (FIIs) remained net sellers in the capital markets, pulling out Rs 512 crore on Tuesday, as per provisional data.
Traders said, the currency market is expected to witness volatility ahead of the Union Budget scheduled Friday.
Meanwhile, the benchmark BSE Sensex opened on a cautious note and was trading with gains of 44.19 points, or 0.11 per cent to quote at 39,860.67 while the NSE Nifty was trading at 11,923.65, up 13.35 points, or 0.11 per cent.