The rupee appreciated by 20 paise to close at a seven-month high of 69.34 against the US dollar Thursday, extending gains for a fourth session in a row, on robust foreign inflows ahead of general elections.
The domestic currency in the four sessions to Thursday has appreciated by 80 paise or 0.8 per cent on hopes of forex inflows.
"Rupee and sovereign bonds have recovered from day's low and turned positive even after RBI's plan to inject USD 5 billion liquidity via three-year foreign exchange swap auction," said V K Sharma, Head PCG & Capital Markets Strategy, HDFC Securities.
The Reserve Bank Wednesday said it will inject long-term liquidity worth USD 5 billion into the system through dollar-rupee swap arrangement with banks for three years.
"RBI announcement will have a limited impact on USD/INR spot on higher rupee liquidity in the economy, expectations of lower OMOs and likely greater FX inflows on lower hedging costs," Sharma said.
The strong foreign fund flows in current month also bode well for the rupee strength.
"FIIs have flooded Indian markets with USD 1.8 billion till date in March which has partially helped market rally," said Sunil Sharma, Chief Investment Officer, Sanctum Wealth Management.
At the Interbank Foreign Exchange market, the rupee opened weak at 69.75 a dollar over its previous closing price of 69.54. The local unit moved in a range of 69.78 to 69.26 before finally ending at 69.34, showing a gain of 20 paise over its last close.
This is the highest closing level since August 10, when the rupee had finished at 68.83.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, gained 0.24 per cent to 96.78.
Foreign institutional investors (FIIs) remained net buyers in the capital markets, putting in Rs 1,482.99 crore Thursday, as per provisional data.
Hemang Jani, Head - Advisory, Sharekhan by BNP Paribas, said that capital markets seem to be factoring in another term for the current government. FIIs have pumped in Rs 30,000 crore this year.
Meanwhile, Brent crude futures, the global oil benchmark, rose 0.16 per cent to trade at USD 67.66 per barrel.
Benchmark indices Sensex and Nifty closed almost flat Thursday after a volatile trade. The BSE Sensex erased its early gains to end up by just 2.72 points, or 0.01 per cent, at 37,754.89, extending the winning run to a fourth session. The broader NSE Nifty closed marginally up by 1.55 points, or 0.01 per cent, at 11,343.25.
The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 69.6657 and for rupee/euro at 78.8416. The reference rate for rupee/British pound was fixed at 92.2880 and for rupee/100 Japanese yen at 62.43.