The rupee gained 11 paise to close at 75.26 against the US dollar on Thursday as heavy buying in domestic equities and weakness in the greenback strengthened investor sentiment.
Besides, fresh foreign capital inflows also helped the domestic unit post gains for a second straight day, forex traders said.
However, surging crude prices in the international market restricted the rupee’s gain, they added.
"Indian rupee appreciated for the second day as domestic equities continue to rally along with foreign fund inflows. Profit booking in dollar against major trading currencies after FOMC meeting minutes supported the rupee,” Dilip Parmar, Research Analyst, HDFC Securities, said.
Near term focus will remain on crude oil, dollar index and the US Treasury yields while the medium-term trend remains bearish for the rupee, he added.
At the interbank forex market, the local unit opened strong at 75.27 against the greenback, and moved in a range of 75.20 to 75.37 in the day trade.
It finally ended at 75.26 against the American currency, registering a rise of 11 paise over its previous close.
On Wednesday, the rupee had settled at 75.37 against the US dollar.
"Spot USD/INR is having support around 75 odd levels while on higher side crossing of 75.70 will pull towards 76 and 76.30 level,” Parmar said.
"Higher foreign flows have so far partially countered effects of higher oil prices, allowing the RBI to refrain from aggressive intervention to correct overvaluation in the INR,” Sok Yin Yong, Fixed Income Analyst Asia, Julius Baer, said.
According to the Currency Desk of Emkay Global Financial Services, there is a pullback witnessed in DXY, especially after the Fed minutes hinted that the central bankers could start tapering, but for USDINR the risk of surging crude oil prices is still there.
"As long as the USDINR spot is trading above 75, view is positive. Next week is pretty light on economic data front but focus will be on any IPO related announcement which can weigh on USDINR spot. So next week’s range could be 74.875.70 with sideways bias."
On the domestic equity market front, the BSE Sensex ended 568.90 points or 0.94 per cent higher at 61,305.95, while the broader NSE Nifty surged 176.80 points or 0.97 per cent to 18,338.55.
Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, dipped 0.28 per cent to 93.81.
Brent crude futures, the global oil benchmark, increased 1.30 per cent to USD 84.26 per barrel.
Foreign institutional investors emerged as net buyers in the capital market on Wednesday, as they purchased shares worth Rs 937.31 crore, as per exchange data.