The rupee appreciated by 45 paise to close at 81.90 (provisional) against the US dollar on Monday amid a weak American currency and sustained foreign fund inflows.
At the interbank foreign exchange market, the local unit opened at 82.14 and touched an intra-day high of 81.90 and a low of 82.32 against the greenback.
The local unit finally settled at 81.90, registering a rise of 45 paise over its previous close amid a positive trend in domestic equities.
On Friday, the rupee had appreciated by 53 paise to close at 82.35.
"Indian Rupee appreciated on weak US Dollar and positive domestic markets. Asian markets jumped today following a surge in US and European markets on Friday," said Anuj Choudhary - Research Analyst at Sharekhan by BNP Paribas.
Choudhary further said the rupee is expected to trade with a positive bias on rise in risk appetite in global markets and weak dollar.
"FII inflows may also support rupee. However, a surge in crude oil prices may cap sharp gains. Investors may remain cautious ahead of trade balance data from India.
"Market participants may remain vigilant ahead of inflation data from the US later this week. USD-INR spot price is expected to trade in a range of Rs 81.25 to Rs 82.80," Choudhary said.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, slipped 0.31 per cent to 110.52.
Global oil benchmark Brent crude futures fell 0.41 per cent to USD 98.17 per barrel.
On the domestic equity market front, the 30-share BSE Sensex advanced 234.79 points or 0.39 per cent to end at 61,185.15, while the broader NSE Nifty gained 85.65 points or 0.47 per cent to 18,202.80.
Foreign Institutional Investors (FIIs) were net buyers in the capital markets on Friday as they purchased shares worth Rs 1,436.25 crore, according to exchange data.