The rupee strengthened for a sixth consecutive session on Thursday to hover around a two-month high, boosted by sustained foreign investor interest in Indian debt and shares.
At 10:40 a.m , the rupee was at 50.29/30 to the dollar, after touching a high of 50.07, its highest since November 14. It closed at 50.3750/3850 on Wednesday.
Dollar demand from oil companies was tempering gains, traders said.
The rupee was helped by a firmer Indian stock market, which took heart from news that the International Monetary Fund was seeking to boost its resources to tackle the euro zone debt crisis.
The main issue for the rupee has been the financing of its external obligations, including the trade deficit, said Daniel Hui, senior foreign exchange strategist at HSBC in Hong Kong.
"Besides a general improvement in global funding markets, regulation changes have helped the rupee as well, in particular the liberalization of NRI (non-resident Indian) deposit rates," said Hui, who expects rupee to rise to 49 to the dollar by the end of March.
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"We still think INR would be the most vulnerable to the resumption of financial market stresses," Hui added.
India's trade gap widened to $43.9 billion in the September quarter from $37 billion a year earlier, while the current account deficit was little changed at $16.9 billion.
Rising foreign portfolio investments and the government's recent decision to raise import duties on gold and silver also helped to push up the rupee, traders said.
India is the biggest consumer of bullion and the metal, along with crude oil, forms a major chunk of the country's massive import bill.
Foreign institutional investors bought about $3 billion of Indian debt and moved $854 million into shares since the new year began, data from the market regulator showed on Wednesday.
One-month offshore non-deliverable forward contracts were being quoted at 50.23, 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 were around 50.35 on total volume of $1.01 billion.