The rupee extended its gains to the sixth straight session on Thursday, driven by robust dollar inflows and a surge in local equities, as risk appetite improved on news the IMF would step up its role in tackling the euro zone debt crisis.
The rupee ended at 50.25/26 to the dollar, after touching 50.07 -- its highest since November 14. It closed at 50.3750/3850 on Wednesday.
"The euro is being well supported, which is positive for rupee sentiment. Equities have also done reasonably well today," said Ajay Marwaha, head of treasury trading at HDFC Bank.
"So by the look of it, we could see rupee strengthen to below 49. But a sustainable level for the medium term looks to be 49 to 51."
The rupee fell to an intra-day low of 50.47 to the dollar on importer demand, and some traders said the Reserve Bank of India may have sold dollars, helping the unit rebound.
The RBI is suspected to have intervened intermittently in the foreign exchange market, the latest being on January 12 to help shore-up the rupee which touched a record low of 54.30 on December 15.
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Some traders expect selling pressure on the rupee in February when Indian companies face foreign currency convertible bond redemptions worth 330 billion rupees.
But traders expect the companies to refinance the debt and said the central bank may intervene in case of a sharp fall in the currency.
Data last week showed the RBI made its biggest dollar sale intervention in over two-and-half years in November, its third consecutive month of intervention.
The euro rose on Thursday, supported by a solid Spanish debt auction and cautiously positive risk appetite, while the BSE Sensex closed up 1.17 percent.
Foreign institutional investors have bought more than $3 billion of Indian debt and moved more than $1 billion into shares so far in January, data from the market regulator showed.
Investors turned sharply bullish on most emerging Asian currencies in the last two weeks, especially the Indian rupee and the Indonesian rupiah, a Reuters poll showed on Thursday.
One-month offshore non-deliverable forward contracts were being quoted at 50.68, indicating some weakness in the short term in the onshore spot rate.
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 all ended around 50.37 on total volume of $5.57 billion.