Mumbai: Extending its winning run for a fifth straight session, the rupee on Tuesday rose by 8 paise to settle at a one-month high of 67.87 against the dollar on sustained selling of the US currency by exporters and banks a day ahead of presentation of Union Budget.
Expectations of an economically balanced Budget by sticking to its fiscal consolidation path which will give room for the Reserve Bank of India to cut key rates along with robust capital inflows predominantly weighed on the local unit, despite a massive selloff in equities.
Extreme dollar volatility in the midst of US President Donald Trump's protectionist policies also supported the trading sentiment.
Though, the Economic Survey on Tuesday projected a lower economic growth of 6.5 per cent for this fiscal, impacted by demonetisation shock, but said it will rebound to 6.75-7.5 per cent in the next financial year.
Domestic markets remained in a tentative mood and took a steep plunge as investors turned cautious ahead of Wednesday's Budget announcements.
The local unit resumed sharply higher at 67.84 from overnight close of 67.95 at the interbank foreign exchange (forex) market and largely traded in a narrow range. It gained further ground in late afternoon deals to hit an intraday high of 67.79 before finishing at 67.87, showing a gain of 8 paise, or 0.12 per cent - a level not seen since December 26, 2016.
Meanwhile, foreign funds remained net buyers and bought shares worth a net Rs 607.36 crore on Monday.
In worldwide trade, the dollar remained weaker against a basket of the other major currencies on growing concerns over the destabilising impact of Trump's immigration policy continued to generate risk aversion.
The US dollar index was trading sharply lower at 99.94 in late afternoon session.
The Reserve Bank of India fixed the reference rate for the dollar at 67.8125 and for the euro at 72.5526.
In cross-currency trade, the Indian unit also rallied against the British pound to conclude at 84.36 from 85.11 per pound.
It fell back against the euro to finish at 72.67 from 72.56 and also drifted against the Japanese Yen to close at 59.60 per 100 yens from 59.22 earlier.
Meanwhile, domestic bourses continued their downtrend for the second straight day on broad-based selling spree along with massive unwinding in technology shares impacted by Trump's immigration policies even as sentiment remained dampened following lower growth projections by the economic survey.
The benchmark Sensex tumbled over 193 points to end at 27,655.96, while the Nifty crumbled 71.45 points to 8,561.30.
In the forward market, premium for dollar showed a steady to firm trend owing to lack of market moving factors.
The benchmark six-month premium for June was quoted steady at 133-135 paise, while the far-forward December 2017 contract edged higher to 276-278 paise from 275.5-277.5 paise.
Crude prices prices traded little changed as rising US output largely weighed on trade.
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