The rupee traded in a narrow range to settle 3 paise higher at 83.96 against the US dollar on Thursday amid a positive trend in domestic equities and foreign fund inflows.

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Forex traders said rupee trade was range-bound with a slight positive bias on positive domestic equities. However, a rebound in the US Dollar and a surge in crude oil prices capped sharp gains.

The USD/INR pair traded within a well-defined range on active intervention by the Reserve Bank of India (RBI), they added.

At the interbank foreign exchange market, the local unit opened at 83.97 and witnessed an intraday high of 83.95 and a low of 83.99 against the American currency.

The domestic unit finally settled for the day at 83.96, higher by 3 paise over its previous close.

On Wednesday, the rupee settled 1 paisa lower at 83.99 against the American currency.

The Indian rupee continued to trade near its all-time low, stuck in a tight range despite declining crude oil prices and healthy foreign portfolio investment (FPI) inflows, said Maneesh Sharma, AVP - Commodities & Currencies, Anand Rathi Shares and Stock Brokers.

"Likely interventions by the Reserve Bank of India (RBI) have kept the rupee rangebound," he added.

"With the highly anticipated US Fed meeting in focus next week, volatility in the rupee could remain contained by active RBI interventions while expectations remain for the rupee to trade within a range of 83.70 to 84.20 in the coming weeks.

"This along with lower oil prices and FPI inflows, may offer support. However, importer demand could exert pressure on the rupee and may take it to above 84 levels in the near term," he added.

The rupee is likely to trade with a slight negative bias on the positive US Dollar and a recovery in crude oil prices. However, a rise in risk appetite in global markets may support the rupee. Any intervention by the RBI may support the rupee at lower levels, said Anuj Choudhary – Research Analyst at Sharekhan by BNP Paribas.

Choudhary further noted that traders may take cues from India's CPI data and European Central Bank (ECB) monetary policy. Investors may remain cautious ahead of the US Federal Open Market Committee (FOMC) meeting next week.

Forex traders said risk sentiment has improved post the US August CPI data. The US headline CPI came in lower than expectations at 2.5 per cent year-on-year. Core CPI came in line with expectations at 3.2 per cent.

The stability in the US CPI data helped the dollar index maintain its current levels.

Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was up 0.06 per cent to 101.74 points.

Brent crude, the international benchmark, gained 1.71 per cent to USD 71.82 per barrel in futures trade.

In the domestic equity market, the 30-share BSE Sensex advanced 1439.55 points, or 1.77 per cent, to close at 82,962.71 points, while the Nifty climbed 470.45 points, or 1.89 per cent, to 25,388.90 points.

Foreign Institutional Investors (FIIs) were net buyers in the capital markets on Thursday, as they purchased shares worth Rs 7,695 crore, according to exchange data.