The rupee appreciated by 12 paise to 83.17 against the US dollar on Friday, tracking a bullish trend in domestic equities, wherein benchmark indices scaled new peaks.
Forex traders attributed the rally to Rs 2.11 lakh crore record dividend by the RBI to the government for the fiscal ended March 31. It was more than double the budgeted expectation, helping shore up revenue ahead of a new government taking office.
At the interbank foreign exchange market, the local unit opened at 83.26 and gained further ground to trade at 83.17 against the greenback, registering a gain of 12 paise from its previous closing level.
The forex market was closed on Thursday on account of 'Buddha Purnima'.
On Wednesday, the rupee appreciated by 2 paise to settle at 83.29 against the US dollar.
After a trading holiday on Thursday, the Indian rupee was on a strong footing following a big transfer of Rs 2.11 lakh crore in the form of dividend from the Reserve Bank of India (RBI) to the Union government, which would improve not only government finances but also allow leverage to spend more on infrastructure, said Anil Kumar Bhansali Head of Treasury and Executive Director Finrex Treasury Advisors LLP.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading at 105.11, higher by 0.01 per cent.
Brent crude futures, the global oil benchmark, advanced 0.05 per cent to USD 81.40 per barrel.
"The overall outlook for the rupee appears strongly positive, with the Nifty 50 reaching an all-time high. These factors indicate that India remains a focal point for investors, with potential for the rupee to appreciate.
"In the short term, the rupee is expected to approach levels of 83.00 to 83.10, while the medium-term target is projected to range between 82.80 and 82.50," CR Forex Advisors MD Amit Pabari said.
On the domestic equity market, both the benchmark indices scaled new peaks. The 30-share BSE Sensex was trading 51.21 points, or 0.07 per cent higher at 75,469.25 points. The broader NSE Nifty breached the 23,000 level in initial trade.
Moreover, the market capitalisation of listed companies on the NSE surpassed USD 5 trillion (Rs 416.57 trillion) on Thursday on a day when the Nifty 50 index touched an all-time high of 22,993.60.
Foreign Institutional Investors (FIIs) were net buyers in the capital markets on Thursday, as they purchased shares worth Rs 4,670.95 crore, according to exchange data.
Except for the headline, this story has not been edited by The Telegraph Online staff and has been published from a syndicated feed.
