The rupee on Tuesday appreciated by 16 paise to settle at 74.46 (provisional) against the US dollar on the back of improved demand for riskier assets after positive news on coronavirus vaccine.
Besides, a weak dollar overseas also supported the local unit.
At the interbank forex market, the domestic unit opened strong at 74.43 against the US dollar and later touched a high of 74.38 in day trade.
The local unit finally closed at 74.46 against the US dollar, registering a gain of 16 paise over its previous close. On Friday, the rupee had settled at 74.62 against the US dollar.
Forex market was closed on Monday on account of Balipratipada.
US-based biotechnology giant Moderna announced on Monday that its Covid-19 vaccine has shown to be 94.5 per cent effective in preventing the deadly disease, bringing a glimmer of hope to a world ravaged by the coronavirus pandemic.
Cambridge, Massachusetts-based Moderna's announcement comes just a week after Pfizer and BioNtech said their Covid-19 vaccine candidate was found to be more than 90 per cent effective in preventing Covid-19 in participants.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, dropped 0.24 per cent to 92.41.
On the equity front, the 30-share BSE index rallied 314.73 points or 0.72 per cent to close at 43,952.71 and the broader NSE Nifty gained 93.95 points or 0.74 per cent to settle at 12,874.20.
Brent crude futures, the global oil benchmark, rose 0.18 per cent to $43.90 per barrel.
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