Rupee is trading at 54.36/38 after rising as high as 54.18 earlier, its strongest since May 17.
That fall had been sparked after Bloomberg-UTV report reported the government may remove the withholding tax on bonds for foreign investors, without citing sources.
"The rupee started rallying after the withholding tax removal talk, though it is only in the proposal stages even now," a senior dealer with a foreign bank said.
Traders add foreign funds were selling dollars and buying rupees via custodian banks as they gear up for the debt limit auction later in the day.
Equity market-related inflows also seen hitting USD/INR, traders say.
