Belying fears about surging crude prices, the rupee managed to hold its ground against the US currency for the second-straight day, gaining by 10 paise to end at 67.70 a dollar.
The Indian currency proved surprisingly resilient despite a sharp surge in global crude prices which alarmingly touched a high of USD 80 a barrel on supply squeeze.
Suspected heavy currency market liquidity intervention by the Reserve Bank of India predominantly helped the rupee to stay afloat amid bullish overseas sentiment.
The home unit, which is the worst performing Asian market currency, seems to be on the verge of recovery after plunging to a fresh 16-month low of 68.15 on Wednesday, a forex dealer said.
Worsening domestic macros against the grim backdrop of boiling crude prices and impending Fed rate hike fears along with dollar strength has been the key dominating force in forex markets in recent weeks.
On the energy front, crude prices shot up to hit USD 80 a barrel for the first time since November 2014 on growing worries of a sharp drop in Iranian oil exports in the coming months due to renewed US sanctions, reducing supply in an already tightening market.
The Brent crude futures, an international benchmark, was trading higher at USD 79.97 a barrel after briefly hitting USD 80 in early Asian trade.
In the meantime, the dollar was hovering near its highest levels in five months against a basket of other major currencies as rising US government bond yields continued to underpin demand for the currency.
Local equities, however, continued to witness massive unwinding as nervous investors took money off the table amid political wrangling in Karnataka and hardening crude oil prices.
Extending its recovery momentum, the rupee resumed higher at 67.72 from overnight close of 67.80 at the Interbank Foreign Exchange (Forex) market on sustained dollar selling by banks and exporters.
Gaining a foothold in the face of easing dollar pressure, the rupee touched an intra-day high of 67.58 in mid morning deals, but eventually pared early strong gains to end at 67.70, showing a gain of 10 paise, or 0.14 per cent.
The RBI, meanwhile, fixed the reference rate for the dollar at 67.7156 and for the euro at 79.8909.
Meanwhile, the yield on the benchmark 10-year government bond maturing in 2028 softened to 7.88 per cent.
The dollar index, which measures the greenback's value against a basket of six major currencies, was higher at 93.38.
In the cross currency trade, the rupee strengthened against the pound sterling to settle at 91.31 per pound from 91.41 and firmed up against the euro to end at 79.79 from 79.85 earlier.
It also hardened against the Japanese Yen to close at 61.21 per 100 yens as compared to 61.55.
Elsewhere, the common currency, euro remained stressed against the greenback on speculation that Italy's possible new coalition government would be looking to write off a sizeable chunk of Italian public debt, bringing forth the worst of market fears.
The British pound is trading modestly lower after sliding back from early highs on reports that the UK is prepared to stay in the customs union beyond 2021.
In forward market today, premium for dollar drifted further owing to consistent receiving from exporters.
The benchmark six-month forward premium payable in September eased to 93.25-95.25 paise from 95-96.50 paise and the far-forward February 2019 contract moved down to 227-229 paise from 229-230 paise previously.
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