The rupee gained 8 paise to 81.66 against the US dollar in early trade on Thursday amid weak American currency in the overseas market.
Forex traders said a positive trend in domestic equities, foreign fund inflows, and crude oil prices below $80 a barrel also supported the local unit.
At the interbank foreign exchange, the domestic unit opened at 81.69 against the dollar and then climbed to 81.66, registering a rise of 5 paise over its previous close.
On Wednesday, the rupee closed at 81.74 against the US currency.
Also read: Weekly Rupee View: Range expected to stay valid
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.07 per cent to 101.40.
Brent crude futures, the global oil benchmark, advanced 0.48 per cent to $78.06 per barrel.
"The rupee is expected to trade in the narrow range of 81.70-82.30 levels as mixed economic data and a fragile geo-political environment are likely to increase volatility, and following a risk-management policy would be suitable this time," CR Forex Advisors MD Amit Pabari said.
In the domestic equity market, the 30-share BSE Sensex advanced 38.68 points or 0.06 per cent to 60,339.26 points. The broader NSE Nifty gained 5.45 points or 0.03 per cent to 17,819.05 points.
Foreign Institutional Investors (FIIs) were net buyers in the capital market on Wednesday as they offloaded shares worth ₹1,257.48 crore, according to exchange data.