The rupee continued its unabated rise for the third-straight day, surging by 35 paise to end at a new two-week high of 67.43 against the US dollar after a surprise crash in crude prices quickly faded near-term trade deficit and inflation worries.
The domestic currency market heaved a sigh of relief following a significant easing in crude prices that will lead to considerable improvement in India's position on fiscal front, bolstering investor confidence towards the home currency.
Global crude oil collapsed after Saudi energy minister Khalid al-Falih endorsed prior comments from his Russian counterparts calling for self-imposed output curbs to be relaxed, perhaps as soon as June.
The meltdown could be a blessing in disguise for India as gradual uptick in inflation made investors jittery and they fear the Reserve Bank of India (RBI) may shift its stance from neutral to tightening which led to hardening of yield, a forex dealer said.
Brent crude futures, an international benchmark, is trading lower at USD 75.37 a barrel, down 1.14 per cent in early Asian trade.
In a further sign of confidence, currency traders and other speculators unwound a part of their bullish long-dollar positions built up over the last few weeks.
However, geopolitical uncertainties after US President Donald Trump pulled out of the planned talks with North Koreas leader Kim Jong Un along with importers demand for the dollar limited further gains in the local unit.
Similarly, selling pressures on government bonds eased significantly with the benchmark 10-year yield tumbled to 7.74 per cent from 7.79 per cent.
The Indian currency had breached the crucial 68 level and came within a whisker of a historic low against the dollar last week.
It has recouped a whopping 1.47 per cent in the last three days.
Meanwhile, foreign institutional investors and funds continued their steep selling spree in the midst of rising US bond yields and pulled out nearly Rs 18,000 crore (USD 2.65 billion) from capital markets so far this month.
India's foreign exchange reserves fell by USD 2.648 billion to USD 415.053 billion in the week to May 18, the Reserve Bank data showed.
The rupee opened with a wide gap-up at 67.52 against last weekend's close of 67.78 at the inter-bank foreign exchange (forex) market on heavy dollar unwinding.
Building on strong momentum, the home currency shot up to hit an intra-day high of 67.29 in mid-morning trade before ending at 67.43, revealing a strong gain of 35 paise, or 0.52 per cent.
The RBI, meanwhile, fixed the reference rate for the dollar at 67.4430 and for the euro at 79.0027.
Globally, the dollar traded lower against its major trading partners, but was fractionally higher against the yen.
The dollar index, which measures the greenback's value against a basket of six major currencies was up at 94.41.
In the cross currency trade, the rupee strengthened against the pound sterling to end at 89.76 per pound from 90.43 and rose further against the euro to finish at 78.47 as compared to 79.28 last Friday.
The local unit also hardened against the Japanese yen to settle at 61.66 per 100 yens from 61.94 earlier.
Elsewhere, the common currency took a big knock against the greenback on the back of growing Italian political uncertainty amid fears that the financial market stress in the Eurozone will cause the ECB to extend its QE and delay rate hikes.
The British pound, however, staged a goodish rebounded from 2018 lows against the US dollar amid holiday-thinned liquidity conditions on the back of a bank holiday in the UK.
In forward market on Monday, premium for dollar dropped further owing to sustained receiving from exporters.
The benchmark six-month forward premium payable in September declined to 87.50-89.50 paise from 89.50-91.50 paise and the far-forward February 2019 contract slumped to 222-224 paise from 226-228 paise previously.