Mumbai: The rupee regained its dominance after a brief consolidation phase and ended on Monday at a fresh 16-month high of 65.36 against the American currency in the face of dollar unwinding from exporters and banks.
Weak dollar overseas along with abundant capital inflows supplemented further strength to the local currency.
Forex dealers pointed to the recent improvement in sentiment as the impetus for the renewed vigour.
Massive capital inflows on hopes of more reform measures following BJP's strong showing in the recently held state elections spurred the rupee's biggest rally last week since early 2015.
Robust domestic macro fundamentals including 7 percent GDP growth and a rebound in industrial production along with lesser-than-anticipated hawkish monetary policy stance too reflected in the strong rallying momentum.
The much-anticipated turnaround on the economic front has opened up a barrage of foreign capital fund flows into India.
Foreign investors pumped in USD 3.4 billion in the capital markets so far this month, while country's foreign exchange reserves nudged up USD 98.6 million in the week ended March 10.
Moreover, there is also an expectation that the government will relax FDI policy norms in more sectors to attract more funds and generating jobs.
Meanwhile, The Union Cabinet today approved four legislations to implement the Goods and Services Tax (GST), ahead of their introduction in Parliament this week to enable roll out of the tax reform from July 1.
The local currency resumed higher at 65.40 as compared to weekend close of 65.46 at the Interbank Foreign Exchange (forex) market.
But, it soon succumbed to fresh dollar pressure and retreated to touch a low of 65.47 briefly in mid-morning deals.
However, overcoming the initial volatility, the home unit staged a smart rebound to touch a high of 65.30 before ending at 65.36, showing a gain of 10 paise, or 0.15 per cent.
It had lost 5 paise to end at 65.46 against the US currency on last Friday.
The RBI, meanwhile fixed the reference rate for the dollar at 65.3827 and for the euro at 70.3779.
Globally, the greenback continued its downward spiral across the board for the fourth day running against basket of currencies in knee-jerk reaction to a G20 summit outcome.
The US dollar index, which measures the greenback's strength against a trade-weighted basket of six major currencies, was trading lower at 100.12 after breaching 100-mark once again.