The rupee hit its highest level in more than a week against the US currency on Friday, as the dollar index fell further from its two-decade high hit earlier this week.
The rupee was trading at 79.6350 to the US dollar, up from 79.71 in the previous session. The local currency had reached 79.57 earlier in the session.
Over the week, the rupee gained about 0.2 per cent and is heading for its best performance in seven weeks.
The dollar index fell 0.8 percent to 108.84 and is heading for its worst session in a month. The gauge climbed to nearly 110.80 earlier this week, a 20-year high.
Brent crude futures have been hovering near $89.50, down about 18 percent since the beginning of August.
Anindya Banerjee, head of research – foreign exchange and interest rates at Kotak Securities, said lower oil prices and a weak dollar were “good enough” for traders to add speculative short rupee positions.
Banerjee said foreign equity inflows are holding up well and this is another positive news for the rupee.
Foreign investors have bought $350 million worth of Indian stocks so far this month after buying $6.5 billion in August, according to NSDL data.
The euro was the main reason for the decline in the dollar index. The European Central Bank on Thursday raised its key interest rate by 75 basis points and said it expects to continue raising interest rates to curb demand, prioritizing the fight against inflation.
Meanwhile, rupee forward premiums fell, with the one-year implied yield slipping to 2.88 percent, weighed down by weaker Federal Reserve and lower oil prices.
Rupee and other rupee futures traded on the NSE exchange rose. Dollar rupee futures fell slightly and open interest on them decreased slightly.
Indian stocks advanced, tracking a slight rise in US stock futures and Asian counterparts.