The rupee gained for a fourth consecutive session on Wednesday to touch a new five-month high as companies and custodian banks sold dollars, with dealers expecting more such sales in coming sessions.
The gains has been largely driven by foreign fund inflows into rallying local equities, which received over $3.5 billion net purchases last month.
Custodian banks were heavy buyers of rupees on behalf of foreign institutional investors, while dealers also cited inflows from a state-run utility, an IT company, as well as a financial services firm that recently sold a stake in one of its businesses.
However, the rupee is already in overbought zone, as per 14-day relative strength index, technical charts showed.
"The rupee is being driven by inflows, and I expect it to test 52 to a dollar," said N.S. Venkatesh, treasurer at IDBI Bank.
"I expect inflows to continue for the next 1-2 weeks."
The partially convertible rupee closed at 52.155/165, as per State Bank of India closing rate from Monday's close of 52.40/41. It rose to an intraday high of 52.13, its highest since April 23.
The market was shut on Tuesday for a national holiday.
The local currency was also helped by a steadier euro, on hopes Spain will eventually request financial aid and thus soothe concerns around the biggest hotspot in the euro zone's debt crisis.
USD/INR 1-month non-deliverable forwards were last trading at 52.41.
In the currency futures market, the most-traded near-month dollar/rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all closed at around 52.45 with a total traded volume of around $6 billion.