The rupee ended 12 paise up at 63.70 against the American currency on fresh bouts of dollar selling by banks and exporters amid huge expectations of a rate cut by the Reserve Bank on Tuesday.
Strong capital inflows as well as firm local equities also bolstered the overall sentiment despite strong dollar overseas, forex dealers said.
The rupee resumed modestly higher at 63.80 against the week-end closing level of 63.82 at the Interbank Foreign Exchange and strengthened further to hit an intra-day high of 63.58 against the dollar.
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%.
The Reserve Bank is scheduled to review its policy rates 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% at 97.33.
Veracity Group CEO Pramit Brahmbhatt said that exporters and banks were seen selling dollar which helped the rupee to trade strong for the day.
The Reserve Bank of India is due to hold its policy review and most analysts expect the central bank to ease monetary policy by 25 basis points, he added.
The trading range for the Spot USD/INR pair is expected to be within 63.20 to 64.20. In the forward market, the benchmark six-month premium payable in November closed almost steady at 223.5-224.5 paise from 222.5-224.5 paise while forward contracts maturing in May 2016 firmed up to 441-442.5 from 437.5-439.5 previously.
The RBI fixed the reference rate for dollar at 63.6083 and for the euro at 69.6256. The rupee continued to gain strength against the pound sterling to 96.95 as compared to 97.37 and rose against the euro to 69.57 from 69.97 last weekend. It also moved up further against the Japanese currency to 51.32 per 100 yen as against 51.50 previously.