The rupee appreciated 3 paise to close at 73.88 against the US dollar on Thursday, tracking positive domestic equities and sustained foreign fund inflows.
At the interbank forex market, the domestic unit traded in a narrow range as rising Covid-19 cases offset positive sentiments surrounding the progress on the vaccine front.
The domestic unit opened at 73.85 against the greenback and witnessed an intra-day high of 73.75 and a low of 73.89.
The local unit extended gains for the fifth straight session and finally closed at 73.88 against the American currency, registering a rise of 3 paise over its previous close.
On Wednesday, the rupee appreciated by 10 paise to close at nearly a one-month-high of 73.91 against the US dollar.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.06 per cent to 92.04.
"Indian Rupee appreciated amid weakness in dollar and rise in risk appetite in the global markets. The dollar showed weakness on disappointing economic data from the US, and US Federal Reserve policy meeting minutes showed that the central bank is committed to using the full range of tools to support the economy if required.
"Sharp gains were prevented on concern that rising coronavirus cases across the globe will threaten the economic recovery. Rupee may trade in a range of 73.65 to 74.60 in next couple of sessions," said Saif Mukadam, Research Analyst, Sharekhan by BNP Paribas.
Foreign institutional investors were net buyers in the capital market as they purchased shares worth Rs 24.20 crore on a net basis on Wednesday, according to exchange data.
On the domestic equity market front, BSE Sensex ended 431.64 points or 0.98 per cent higher at 44,259.74, while the broader NSE Nifty jumped 128.60 points or 1 per cent to 12,987.00.
Brent crude futures, the global oil benchmark, fell 1.21 per cent to USD 48.02 per barrel.