The rupee appreciated by 43 paise to close at 81.92 against the US dollar on Monday amid a weak greenback overseas and sustained foreign fund inflows.
At the interbank foreign exchange market, the local unit opened at 82.14 and touched an intra-day low of 82.32 against the greenback.
The local unit finally settled at 81.92, registering a gain of 43 paise over its previous close amid a positive trend in domestic equities.
On Friday, the rupee had appreciated by 53 paise to end at 82.35.
"Indian Rupee appreciated on weak US Dollar and positive domestic markets. Asian markets jumped today following a surge in US and European markets on Friday," said Anuj Choudhary – Research Analyst at Sharekhan by BNP Paribas.
Choudhary further said the rupee is expected to trade with a positive bias on the rise in risk appetite in global markets and weak dollar.
"FII inflows may also support the rupee. However, a surge in crude oil prices may cap sharp gains. Investors may remain cautious ahead of trade balance data from India.
"Market participants may remain vigilant ahead of inflation data from the US later this week. USD-INR spot price is expected to trade in a range of Rs 81.25 to Rs 82.80," Choudhary said.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, slipped 0.31 percent to 110.52.
Global oil benchmark Brent crude futures fell 0.41 percent to USD 98.17 per barrel.
On the domestic equity market front, the 30-share BSE Sensex advanced 234.79 points or 0.39 percent to end at 61,185.15, while the broader NSE Nifty gained 85.65 points or 0.47 percent to 18,202.80.
Foreign Institutional Investors (FIIs) remained net buyers in the capital markets on Monday as they purchased shares worth Rs 1,948.51 crore, according to exchange data.
The rupee has gained over 1 percent over the past two sessions, said Sriram Iyer, Senior Research Analyst at Reliance Securities.
"Except the Chinese yuan, Asian currencies extended their gains into a second day amid improved risk appetite in the region as markets shrugged off the Yuan's weakness," Iyer added.
Markets also shrugged off stronger Brent crude prices which traded near USD 100/barrel and further uptick in oil cannot be ruled out which could worsen the trade deficit.
Indian markets will be closed on Tuesday for 'Gurunanak Jayanti'.
In the overseas markets, the dollar eased even as short-term Treasury yields hovered near their highest since 2007, after last week's Fed rate hike, relatively robust jobs report, and ahead of important inflation data this week.
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