The rupee settled for the day with gains of 28 paise at 71.84 against the US dollar on Thursday as investor sentiment revived after China and the United States said they will resume trade talks.
The Indian currency has appreciated by 55 paise in the past two sessions.
At the interbank foreign exchange market, the local unit opened on a strong note at 71.87 and finally closed at 71.84, higher by 28 paise over its previous close.
During the day, the domestic unit shuttled between a high of 71.79 and low of 71.98 during the day.
The rupee had settled at 72.12 against the US dollar on Wednesday.
"India's rupee rises for the second day as risk on sentiments drove global equities higher after China and US said they would resume trade talks in October. Rupee is expected to follow movement of Chinese currency as it has been doing since August month," said V K Sharma, Head PCG & Capital Markets Strategy, HDFC Securities.
Sharma further noted that spot USD/INR is having support at 71.40 and resistance for the same seen at 72.25 in the near term.
Forex traders said the Indian currency gained following weakness in the US dollar.
The dollar index, which gauges the greenback's strength against a basket of six currencies, slipped 0.30 per cent to 98.15.
Market participants, however, said weak domestic equity market, sustained foreign fund outflows and rising crude prices weighed on local currency.
Foreign institutional investors (FIIs) remained net sellers in the capital market, pulling out Rs 561.17 crore on Thursday, according to provisional exchange data.
"Foreign fund outflow has been the major concern for the Indian currency and that would continue to weigh on rupee if trend does not change on sustainable basis," Sharma said.
Brent crude futures, the global oil benchmark, rose 0.18 per cent to trade at USD 60.81 per barrel.
The 10-year government bond yield was at 6.58 per cent on Thursday.
On the domestic market front, The 30-share index settled 80.32 points, or 0.22 per cent, lower at 36,644.42. The broader Nifty, on the other hand, ended 3.25 points, or 0.03 per cent, higher at 10,847.90.
The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 72.0700 and for rupee/euro at 79.1050. The reference rate for rupee/British pound was fixed at 87.2806 and for rupee/100 Japanese yen at 67.89.
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