The Indian rupee, on Wednesday, rose to its highest level this year on the back of likely inflows into equities, a pickup in hedging-related dollar sales from local exporters and cutting of bearish positions on the local currency.
The rupee rose 0.5% to a high of 84.78 per dollar, tracking gains in Asian currencies, which were up by as much as 0.8% on the day.
Optimism surrounding a potential trade deal between India and the US has also aided the rupee.
U.S. President Donald Trump said on Tuesday that talks with India on tariffs were coming along great, and he thinks the two countries will reach a deal.
On the day, the currency's rise over a key technical resistance level near the 200-day moving average bolstered its upward momentum, traders said.
“Stop losses have hit for many banks and a lot of dollar-long positions have seen reversal, with 84.70-84.75 levels seen as the next crucial support level (for USD/INR),” a trader with a brokerage said.
A pickup in foreign portfolio inflows into Indian equities over the last two weeks has boosted the local currency, which is on track to log a 0.8% gain on the month.
At the same time, exporters have jumped in to hedge their dollar receivables while demand from importers has been muted since many of them had covered their liabilities when the rupee rallied last month, an FX salesperson at a bank said.
The rupee rose over 2% in March, its best monthly performance since November 2018.
"A weaker US dollar, along with the market becoming more dovish on the US rates outlook, could provide some support for several Asian currencies," MUFG Bank said in a note.
Some traders cautioned that the rupee remains prone to a reversal though, in case cross-border tensions with Pakistan escalate after last week's militant attack in Kashmir.
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