The rupee was aided by sustained dollar selling by exporters, weak dollar overseas ahead of the release of U S consumer confidence and home price data later in the day.
The dollar index was down by 0.12 per cent against the basket of six major global currencies.
At the Interbank Foreign Exchange (Forex) market, the domestic unit commenced higher at 61.95 a dollar from previous close of 62.07.
It later moved in a tight range of 61.88 and 62.04 before settling at 61.94, up by of 13 paise.
"The rupee was seen extending its lacklustre trading for the third consecutive session....It was yet another positive session for the rupee which closed at 61.94 levels. Consistent flows in the Indian market, positive stock markets and weakness in the US dollar is seen helping rupee to post gains," said Abhishek Goenka, Founder & CEO, India Forex Advisors.