The rupee posted its best day against the dollar in more than a month on the back of dollar inflows and an unwinding of speculative long-dollar positions, which also helped it log its best week in more than two years.
The rupee ended at 85.9725 against the US dollar from 86.3675 in the previous session. It rose to a 10-week high of 85.9375 during the session and gained 1.2% in the week.
A revival in domestic equities has lifted market sentiment for the rupee, Sugandha Sachdeva, founder of SS WealthStreet, a New Delhi-based research firm, said. If the rupee fails to breach the 85.90 mark, it is likely to face depreciation pressure, with an immediate support expected in the 86.80 to 87.00 range, she said.
Traders said that large foreign banks were "privy" to a major flow this week and have been on offer for the dollar/rupee pair consistently. Equity inflows related to the rebalancing of the FTSE's All-World Index are also likely to have boosted the rupee.
The rebalancing, which will take effect from Friday, is expected to garner inflows of about $1.5 billion. The benchmark Nifty 50 index ended 0.7% higher on Friday.
Foreign portfolio investors, who have been sellers of Indian equities since late last year, turned buyers in two of the last four sessions, per provisional data. The flows helped the rupee sidestep the weakness in Asian currencies.
Most Asian currencies declined, while the dollar index inched up tentatively. The primary focus for traders remains on US trade policy and the trajectory of US economic growth.
The flash US services and manufacturing data due Monday will help investors assess how the world's largest economy is holding up.
