The rupee rose by 18 paise to close at a nearly four-week high of 79.06 against the US currency on Monday following foreign fund inflows, a decline in crude oil prices and weak American currency in global markets.
Strong gains in domestic equities, positive PMI data and an increased appetite for riskier assets among investors also boosted the rupee sentiment, analysts said.
At the interbank forex market, the local unit opened higher at 79.16 on gains in stocks and a fall in crude oil.
The rupee touched a high of 79.00 and a low of 79.22 before settling at 79.06, the highest closing level since July 6. In the previous session, the rupee had closed at 79.24 against the US dollar.
According to Anuj Choudhary - Research Analyst at Sharekhan by BNP Paribas, the Indian rupee appreciated following risk-on sentiments, a decline in crude oil prices and a weak US Dollar.
Moreover, India's Manufacturing PMI rose to 56.4 in July compared to 53.9 in June, and this also supported the rupee.
"We expect the rupee to trade mixed to positive on weak US dollar and positive global risk sentiments. FII inflows and weak crude oil prices may also support the rupee. Markets may also take cues from US ISM manufacturing data today and RBI's monetary policy outcome towards the end of the week. USDINR spot price is expected to trade in a range of Rs 78.50 to Rs 80 in the next couple of sessions," Choudhary said.
According to Jateen Trivedi, VP Research Analyst at LKP Securities, the rupee traded positive near 79.00 as FII inflows continued in capital markets helped by the dollar index dropping near USD 105 after almost a month.
"Crude prices falling below USD 97 for WTI also helped the markets to remain positive for the rupee. Going ahead Rupee can be seen in the range of 78.80-79.40," Trivedi said.
Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services said the rupee rose in the past few sessions following the retracement in the dollar.
"Last week, comments from Fed Chair Jerome Powell spurred hopes for a slower hiking path. The dollar retraced from higher levels and that helped the rupee gain. This week's focus will be the Reserve Bank of India policy statement," Somaiya said.
Somaiya further said that "expectation is that the central bank could raise rates by 35 bps and maintain a hawkish stance. We expect the USDINR (spot) to trade sideways and quote in the range of 79.05 and 79.80 in the short-term."
The dollar index, which measures the greenback's strength against a basket of six currencies, was down 0.52 per cent at 105.34.
Brent crude futures, the global oil benchmark, fell 1.21 per cent to $102.71 per barrel.
On the domestic equity market front, the BSE Sensex ended 545.25 points or 0.95 per cent higher at 58,115.50, while the broader NSE Nifty advanced 181.80 points or 1.06 per cent to 17,340.05.
Foreign institutional investors were net buyers in the capital market on Monday, purchasing shares worth Rs 2,320.61 crore, as per exchange data.