Strengthening for the third day in a row, the rupee on Thursday shot up by 42 paise against the dollar to end at 54-level for the first time in nearly three weeks, amid sustained FII inflows and a surprise rate cut by China.
The rupee commenced higher at 55.14 a dollar from the overnight close of 55.36 at the Interbank Foreign Exchange (Forex) market, and immediately touched a low of 55.30 on some dollar demand from oil importers as crude oil hovered around the USD 85 per barrel.
However, the currency bounced back to breach 55-mark to a high of 54.92 before concluding at 54.94, its highest closing since May 18. This was rise of 0.76 per cent or 42 paise.
In the last three sessions, the rupee has gained 71 paise at a time local stocks, represented by Sensex, rose over 600 points with the 30-share index rising by 195 points today.
Apart from Foreign Institutional Investors (FIIs) buying shares worth over Rs 675 crore today, forex dealers said the rate cut in China in late trade further boosted a revival in global risk-taking sentiment.
The euro hit a 10-day high of USD 1.2601 against the dollar and the Australian dollar rose to new three-week high of USD 0.9993 after China's central bank unexpectedly cut benchmark one-year lending rate by 25 bps to 6.31 per cent.
The deposit rate was also lowered by 25 bps to 3.25 per cent.
The rate cut by China helped the rupee, said Hemal Doshi, Chief Currency Strategist, Geojit Comtrade.
"Factors like euro strengthening against dollar and FIIs buying shares have contributed to the appreciation of rupee," said T S Srinivasan, GM (Treasury), Indian Overseas Bank.
Expectations of more easing from Federal Reserve weakened the dollar as it down 0.3 per cent against a basket of currencies.