The Indian rupee opened 16 paise higher at 73.15 per dollar on December 31 against the previous session's close of 73.31.
The greenback slipped to its lowest level in two years as investors bought into riskier equities amid hopes of a faster-than-expected economic recovery.
The upbeat mood, reflected in overnight gains on Wall Street, drubbed the “safe-haven” dollar and supported almost all other major currencies. The dollar dropped against a basket of currencies, sinking 0.074 percent to 89.528, after earlier touching its lowest since April 2018, reported Reuters.
The Indian currency rose even as the domestic equity market benchmarks traded almost flat.
At 1000 hours, the BSE Sensex was 32 points up at 47,778 and the Nifty was flat at 13,983.
Brokerage firm ICICI Direct said the rupee violated its important support of 73.5, which is likely to help it appreciate and move towards 73 levels in the coming days.
"Positive domestic equities, continuous inflows from FIIs and a weakness in dollar index would provide support," ICICI Direct said.
The brokerage firm has a "sell" call on USD-INR January futures, with a target price of 73.30 and a stop loss of 73.62 for intraday trade.