The rupee rose on Friday in line with other Asian currencies and shares, which rallied as risk appetite returned to markets after the European Central Bank put forth a bond-buying plan to help the ailing euro zone economies.
ECB President Mario Draghi, backing up his promise to do whatever it takes to preserve the euro, unveiled a new and potentially unlimited bond-buying programme on Thursday aimed at lowering painfully high borrowing costs for stressed member states.
"The rupee rose tracking the euro which was nearing $1.27 from $1.2630 levels. Some dollar inflows, especially from foreign banks who had been on the sell side since morning, also helped," said A. Ajith Kumar, a forex dealer with Federal Bank.
The partially convertible rupee closed at 55.3550/3650 per dollar as per the SBI closing rate versus its previous close of 55.65/66. The unit moved in a range of 55.3825 to 55.63 during the session.
The rupee rose 0.3 percent on the week.
"55.10 will be a good support for the dollar, a break from which may lead to 54.80-54.50 levels, while on the upside 55.60 will be first resistance and then 55.90. But we will have to see how the euro behaves after today's NFP data," Kumar said.
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The ADP National Employment Report on Thursday showed that U.S. private employers added 201,000 jobs in August, easily beating economists' expectations for 140,000 new private sector jobs.
The numbers helped to boost expectations that the non-farm payrolls (NFP) report - due at 1230 GMT - may show a bigger rise in non-farm payrolls than economists' median forecast of 125,000 jobs.
Traders said post the NFP the focus will be on the domestic factory output data on Wednesday and inflation data on Friday.
The index of industrial production edged up 0.3 percent year on year in July, according to a median forecast of 30 economists, after shrinking 1.8 percent in June, which was the third contraction in four months.
The one-month offshore non-deliverable forward contract was at 55.64, while the three-month was at 56.27.
In the currency futures market, the most-traded near-month dollar/rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange closed at around 55.52 with a total traded volume of $3.9 billion.