Tracking a positive trend in domestic equities and Asian currencies, rupee witnessed an upsurge of 14 paise to 86.46 against the US dollar in morning trade on Monday. As per the Forex traders,  factors such as elevated Dollar Index level coupled with the surging crude oil prices pose significant headwinds for the USD/INR pair.

Registering a gain of 14 paise over its previous close, the rupee has opened at 86.48 and touched 86.46 against the greenback at the interbank foreign exchange. If we go back to Friday, the rupee had settled at 86.60 against the US dollar. While, the dollar index was trading lower by 0.22 per cent at 109.10 which gauges the greenback's strength against a basket of six currencies.

If we look at the Brent crude, which is the global oil benchmark, say a downside of 0.12 per cent to USD 80.69 per barrel. Creating challenges for sustained rupee appreciation, the overall strength of the American currency and elevated crude oil prices are likely to strain India's trade balance, said forex traders.

Furthermore, as the Asian currencies rose and the Indian rupee opened on a positive note against the US dollar, it is expected to trade within a range of 86.40/70 for the day. It is further expected that it might become volatile as it progresses as per Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP.

Bhansali added, "Dips are still busy for importers as we expect the rupee to depreciate by Rs 1.50 to 88.00 by March to bring the real effective exchange rate (REER) towards 105 levels.”

The 30-share sensitive index Sensex climbed 398.21 points to 77,017.54 in early trade on the domestic equity market front - Nifty was up 105.15 points to 23,308.35. As they offloaded shares worth Rs 3,318.06 crore, according to exchange data, foreign Institutional Investors (FIIs) remained net sellers in the capital markets on Friday.

The RBI said on Friday that India's forex reserves dropped by USD 8.714 billion to USD 625.871 billion in the week which ended January 10. Adding to this, the Reserve Bank of India said, the overall kitty dropped by USD 5.693 billion to USD 634.585 billion in the week which ended on January 3.