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The rupee closed 12 paise higher at 63.71 against the dollar on fresh bouts of selling by banks and exporters, amid expectations of a rate cut by the Reserve Bank of India.
Strong capital inflows as well as firm local equities also bolstered the overall sentiment despite strong dollar abroad, forex dealers said.
It resumed higher at 63.80 against the weekend closing level of 63.83 at the interbank foreign exchange market and strengthened further to 63.58.
However, the local currency trimmed the gains on some dollar demand before finishing at 63.70, showing a gain of 12 paise, or 0.19 per cent.
The Reserve Bank is scheduled to review its policy rates tomorrow amid a growing clamour for rate cuts by industry to bring down the cost of capital and restore the economy's health.
The RBI has so far cut the repo rate by 50 basis points in calendar year 2015.
Meanwhile, the dollar remained broadly higher against a basket of other major currencies amid growing expectations of rate hike by the US Federal Reserve even after data showed that the US economy contracted in the first quarter.
The US dollar index was trading higher by 0.39 per cent at 97.33.
