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The Indian rupee is expected to open higher against the U.S. dollar on Friday, after the country reported a lower-than-expected current account deficit for the June quarter.

The dollar index pulling back further from multi-year highs will likely be an additional boost for the rupee, traders said.

The rupee is likely to open around 81.65-81.70 per dollar, up from 81.86 in the previous session.

India posted a CAD of $23.9 billion in the April-June period, wider than $13.4 billion in the preceding quarter but lower than $30.5 billion that economists were expecting.

In terms of percentage of the GDP, the CAD widened to 2.8%, the highest in four years. A Reuters poll of 18 economists were expecting CAD of 3.6% of the GDP.

"A slightly larger services surplus, and remittances, ensured the deficit did not widen dramatically," said Rahul Bajoria, chief India economist at Barclays Bank.

Bajoria expects the CAD to remain elevated in the coming quarters, thanks to the revival in domestic demand and the ongoing impact of elevated commodity prices.

Traders await the Reserve Bank of India's policy decision at 1000 IST (0430 GMT). The surging Treasury yields and the resultant pressure on the rupee is likely to prompt the RBI reason to deliver a 50-basis-point rate hike.

"In the context how quickly the rupee has fallen over the last few days, we think it is almost certain the RBI will deliver a 50 basis point hike and a hawkish commentary," a trader at a Mumbai-based bank said.

FTSE Russel said India will be retained on its watch list for a potential upgrade to Market Accessibility Level '1' and for consideration for inclusion in the FTSE Emerging Markets Government Bond Index (EMGBI).

"FTSE Russell outcome reduces the likelihood that India would be added to GBI-EM, as it suggests that there have not been sufficient progress on overcoming operational hurdles," DBS said in a note.

The dollar index dropped about 1% on Thursday to near 112, pulling back away from the two-decade high of 114.78. A rally in the British pound to above 1.10 to the dollar pulled down the gauge.

KEY INDICATORS:** One-month non-deliverable rupee forward at 81.82; onshore one-month forward premium at 26 paise

** USD/INR NSE October futures closed at 82.0175 on Thursday

** USD/INR forward premium for end October is 24 paise

** Dollar index at 112.12

** Brent crude futures down 0.3% at $88.2 per barrel

** Ten-year U.S. note yield at 3.79%

** SGX Nifty nearest-month futures down 0.6% at 16,715

** As per NSDL data, foreign investors sold a net $255.9 million worth of Indian shares on Sept. 28

** NSDL data shows foreign investors sold a net $45.8 million worth of Indian bonds on Sept. 28