The rupee gained 10 paise to 81.91 against the US dollar in early trade on Thursday tracking the weakness of the American currency in the overseas market, after the US Fed raised interest rates on expected lines.
Forex traders said a positive trend in domestic equities and foreign fund inflows also aided the local unit.
However, a surge in crude oil prices capped sharp gains for the local unit, they said.
At the interbank foreign exchange, the domestic unit opened at 81.92, then touched a high of 81.91 against the American currency, registering a rise of 10 paise over its last close.
On Wednesday, the rupee had settled at 82.01 against the dollar.
"As Fed Chairman Jerome Powell said that there could be another rate hike in September, markets anticipated that Fed's rate hike cycle is coming to an end and pulled dollar down as dollar index fell to 100.74 down from 101.65 it hit earlier in the week," said Anil Kumar Bhansali, Head of Treasury and Executive Director, Finrex Treasury Advisors LLP.
The dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.05 per cent to 100.83.
Indian rupee which fell on Wednesday opened slightly higher "after what market anticipated as a dovish Fed," Bhansali said.
Meanwhile, Brent crude futures, the global oil benchmark, rose 1.03 per cent to $83.77 per barrel.
In the domestic equity market, the 30-share BSE Sensex was trading 183.85 points or 0.28 per cent higher at 66,891.05. The broader NSE Nifty advanced 64.50 points or 0.33 per cent to 19,842.80.
Foreign Institutional Investors (FIIs) were net buyers in the capital markets on Wednesday as they purchased shares worth ₹922.84 crore, according to exchange data.