The rupee strengthened by 16 paise to close at 70.88 against the US dollar on Thursday as investor sentiment got a lift after US President Donald Trump said a trade deal with China could happen sooner than expected.
Robust buying in domestic equities, fresh foreign fund inflows and easing crude oil prices also lent support to the domestic unit, forex traders said.
At the interbank foreign exchange market, the rupee opened on a strong note at 70.99 and shuttled between a high of 70.85 and a low of 71.01 during the day.
The domestic currency finally settled at 70.88 per dollar, higher by 16 paise over its previous close.
"Rupee appreciated amid strong equity market sentiments," HDFC Securities Head PCG and Capital Markets Strategy V K Sharma said, adding that "indications of earlier than expected US-China trade deal strengthened investor sentiments".
Meanwhile, crude oil benchmark Brent Futures dipped 0.22 per cent to USD 62.25 per barrel.Foreign institutional investors (FIIs), who were net sellers for the last few sessions, bought equities worth a net Rs 737.17 crore on Thursday, according to provisional exchange data.
The 10-year government bond yield was at 6.72 per cent.The dollar index, which gauges the greenback's strength against a basket of six currencies, inched up 0.06 per cent to 99.09.
"ICE Dollar index has broken out from last two week's range and reached above 99," Sharma said.On the domestic market front, the 30-share Sensex ended 396.22 points, or 1.03 per cent, higher at 38,989.74. Similarly, the broader NSE Nifty soared 131 points, or 1.15 per cent, to end at 11,571.20.
The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 71.0395 and for rupee/euro at 78.1425. The reference rate for rupee/British pound was fixed at 88.5498 and for rupee/100 Japanese yen at 66.18.