The rupee appreciated by 27 paise to 71.85 against the US dollar in early trade on Thursday as gains in domestic equity market enthused investors.
At the interbank foreign exchange the rupee opened at 71.87, then gained further ground and touched a high of 71.85, registering a rise of 27 paise over its previous close.
Rupee had settled at 72.12 against the US dollar on Wednesday.
The domestic unit however could not hold on to the gains and was trading at 71.93 against the dollar at 0955 hrs.
Forex traders said higher opening in domestic equities supported the rupee.
Domestic bourses opened on a positive note on Thursday with benchmark indices Sensex trading 119.07 points higher at 36,843.81 and Nifty up 40.95 points at 10,885.60.
Market participants, however, said sustained foreign fund outflows and rising crude prices weighed on local currency.
Foreign institutional investors (FIIs) remained net sellers in the capital market, pulling out Rs 1,738.49 crore on Wednesay, according to provisional exchange data.
Brent crude futures, the global oil benchmark, rose 0.07 per cent to trade at USD 60.74 per barrel.
Moreover, strengthening of the American currency vis-a-vis other currencies overseas also dragged the rupee down.
The dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.03 per cent to 98.48.
The 10-year government bond yield was at 6.58 per cent in morning trade.
Meanwhile, on the global front, US President Donald Trump on Wednesday said that China has taken advantage of the US and the World Trade Organisation (WTO).
Trump said China will make a deal, if they want. "If they don't want to make a deal, that's fine.But I can tell you: They're having one of the worst -- I guess, the worst on record, and they want to make a deal. And if I were them, I'd want to make a deal, too. But we'll see what happens," he said.