The rupee appreciated by 22 paise to 71.58 against the US dollar on Friday following positive developments in the US-China trade talks.
Besides, firm trend in domestic equity markets and easing crude oil prices also revived the rupee sentiment, forex dealers said.
At the interbank foreign exchange, the domestic currency opened strong at 71.76 and gained further strength to touch a high of 71.49 against the US dollar. The local unit, later was trading at 71.58.
The rupee had slipped 3 paise to close at 71.80 against the US currency on Thursday.
Renewed hopes for US-China trade talks after Beijing indicated that it may not retaliate against the latest tariffs imposed by the US helped the domestic currency, dealers said.
The BSE Sensex was trading 205.70 points, or 0.55 per cent, higher at 37,274.63, while the broader Nifty rose 61.35 points, or 0.56 per cent, to 11,009.65 in morning trade.
In the annual report for FY19, released Thursday, the RBI conceded that diagnosing the exact problems is "difficult", but reiterated that the issues are not structural in nature, barring those around land, labour and agri produce marketing.
"The key question that confronts the economy is: are we dealing with a soft patch, or a cyclical downswing, or a structural slowdown?" the RBI, which has revised down its GDP forecast to 6.9 percent earlier this month, concludes that "the ongoing deceleration can be in the nature of a soft patch mutating into a cyclical downswing, rather than a deep structural one."
Foreign institutional investors (FIIs) remained net sellers in the capital markets, pulling out Rs 986.58 crore on Thursday, as per provisional data.
Brent crude futures, the global oil benchmark, declined 0.02 per cent to USD 61.07 per barrel.
The dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.02 per cent to 98.52.
The 10-year government bond yield was down at 6.55 per cent in morning trade.