The rupee appreciated by 3 paise to close at 73.56 (provisional) against the US dollar on Friday amid sustained foreign fund inflows and positive domestic equities.
Traders said weakness in the American currency in the overseas market supported the domestic unit.
At the interbank forex market, the local unit opened at 73.55 against the greenback and witnessed an intra-day high of 73.49 and a low of 73.57.
It finally ended at 73.56 against the American currency, registering a rise of 3 paise over its previous close. On Thursday, the rupee settled flat at 73.59 against US dollar.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading up 0.20 per cent at 90.00.
"Value erosion in dollar, excessive liquidity is driving foreign investors to bet big on Indian equities, which give the rupee a slight appreciating bias in the near term," said Sugandha Sachdeva VP-Metals, Energy & Currency Research, Religare Broking.
Sachdeva further noted that "73.20-73.00 remains a strong hurdle for the rupee, and with the Reserve Bank standing in the way, bouts of large-scale appreciation can be ruled out. We reckon that the RBI will prefer to keep the rupee exchange rate stable between the 73 to 74.50 band for quite some time now".
On the domestic equity market front, BSE Sensex ended 70.35 points or 0.15 per cent higher at 46,960.69, while the NSE Nifty rose 19.85 points or 0.14 per cent to 13,760.55.
Foreign institutional investors were net buyers in the capital market as they purchased shares worth Rs 2,355.25 crore on a net basis on Thursday, according to exchange data.
Brent crude futures, the global oil benchmark, fell 0.21 per cent to USD 51.39 per barrel.
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