The rupee rebounded after two straight days of fall to settle 17 paise higher at 83.17 (provisional) against the US dollar on Thursday, amid a weak American currency overseas and a rally in domestic equity markets.
The inflow of foreign funds and a downward trend in crude oil prices also supported the Indian currency, forex traders said.
At the interbank foreign exchange, the domestic currency opened at 83.33 and traded in a range of 83.16-83.34 against the greenback. The local unit finally settled at 83.17 (provisional), registering a gain of 17 paise over its previous close.
The rupee had lost 18 paise in the previous two sessions.
On Wednesday, the domestic currency settled 15 paise lower at 83.34 against the dollar, a day after closing at a loss of 3 paise.
Anuj Choudhary, Research Analyst at Sharekhan by BNP Paribas, said the rupee appreciated on the weak US dollar and a surge in domestic markets.
Choudhary said the rupee is likely to trade with a slight positive bias on fresh foreign inflows and an extended decline in the US dollar. Also, "traders may take cues from weekly unemployment claims data from the US. USD-INR spot price is expected to trade in a range of Rs 82.90 to Rs 83.50".
The US dollar declined on rising expectations of rate cuts by the US Federal Reserve.
The dollar index, which gauges the greenback's strength against a basket of six currencies, was trading lower by 0.28 per cent at 100.37 on Thursday.
Meanwhile, global oil price benchmark Brent crude declined 0.64 per cent to USD 79.14 per barrel.
In the domestic equity market, the 30-share BSE Sensex jumped 371.95 points or 0.52 per cent to settle at an all-time high of 72,410.38 points. The broader NSE Nifty soared 123.95 points or 0.57 per cent to 21,778.70 points.
FIIs bought equities worth Rs 2,926.05 crore on Wednesday, according to exchange data