The Indian rupee appreciated sharply by 31 paise at market close on Thursday, with growing foreign inflows, a largely unchanged dollar index, and settling market sentiment.
The local unit closed at 85.38 against the US dollar, extending its slip below the psychological level of 86 for the third session. The rupee had opened at 85.61.
"India's real yields continue to remain higher than those of major global economies, making Indian assets more appealing to foreign investors. This is expected to bring in more foreign money and provide further support to the rupee," said Amit Pabari, managing director of CR Forex Advisors.
A decisive break below the 85.50 level could open the path toward 85.00 in the near term, added Pabari.
"Given the current sentiment, the dollar index will likely see a short-term pullback to the 101.50–102 range, driven by the hawkish statements from the Federal Reserve," he said.
The dollar was trading at a 0.09% rise at 99.47, as of 03:27 p.m.
Oil prices surged for a second consecutive day amid US strong sentiment to drive Iranian oil exports to zero. Market optimism was also fuelled by ongoing US-Japan trade discussions, hinting at potential agreements.
Brent crude climbed above $66 a barrel, following a near 2% increase on Wednesday, positioning the commodity for its first weekly gain this month.
The June futures contract for Brent crude was trading 0.87% up at $66.42 per barrel on the Intercontinental Exchange as of 3:35 p.m.
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