Paring its early sharp gains, the rupee ended marginally higher by 4 paise at 67.25 against the US dollar in a highly volatile trade amid buoyant overseas sentiment.
Sustained dollar selling by exporters and suspected RBI intervention through state-owned banks largely helped the home currency to settle higher for the second straight day.
Robust capital inflows into equities and debts also aided sentiment for the local unit.
Dealers avoided taking long positions ahead of RBI’s bi-monthly monetary policy meet due on Tuesday, a forex trader said.
The domestic unit resumed firmly higher at 67.23 a dollar against last closing level of 67.29 at the Interbank Foreign Exchange (Forex) market owing to consistent selling of the American currency by banks and exporters.
It gained further ground moving in line with a higher opening in the domestic equity market and touched an intra-day high of 67.15.
However, the local unit turned highly volatile in late afternoon trade and took a sudden reversal trend to touch a low of 67.3750 owing to fresh bouts of dollar demand.
However, it recouped some of its losses to end at 67.25, showing a nominal gain of 4 paise, or 0.06 per cent.
Trading in most emerging Asian currencies was subdued as investors awaited the key US employment data for May later in the day.
The dollar has been strengthening in recent weeks as expectations of Fed rate hike.
Meanwhile, the RBI fixed the reference rate for the dollar at 67.2415 and euro at 74.9944.
In cross-currency trades, the rupee continued to rule firm against the pound sterling and closed at 96.98 compared to 97.23 and also rose against the euro to end at 74.94 from 75.30 earlier.
However, it weakened further against the yen to settle at 61.78 per 100 yens from 61.76 yesterday.