The rupee appreciated by 27 paise to 70.80 against the US dollar in early trade on Friday as optimism about US-China trade talks and gains in domestic equity market enthused investors.
At the interbank foreign exchange the rupee opened at 70.82, then gained further ground and touched a high of 70.80, registering a rise of 27 paise over its previous close.
Rupee had settled at 71.07 against the US dollar on Thursday.
The domestic unit however could not hold on to the gains and was trading at 70.92 against the dollar at 1012 hrs.
Forex traders said higher opening in domestic equities supported the rupee.
Meanwhile, US President Donald Trump said he is meeting with Chinese Vice Premier Liu He on Friday, raising hopes for progress on this week's high-level talks aimed at ending a 15-month trade war between the two nations.
"Big day of negotiations with China. They want to make a deal, but do I?" Trump said in a tweet Thursday before the start of the trade talks between US and China.
Domestic bourses opened on a positive note on Friday with benchmark indices Sensex trading 425.29 points higher at 38,305.69 and Nifty up 110.75 points at 11,345.30.
Moreover, weakening of the American currency vis-a-vis other currencies overseas also propped the rupee.
The dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.04 per cent to 98.66.
Market participants, however, said sustained foreign fund outflows and rising crude prices weighed on local currency.
Foreign institutional investors (FIIs) remained net sellers in the capital market, pulling out Rs 263.11 crore on Thursday, according to provisional exchange data.
Brent crude futures, the global oil benchmark, rose 0.54 per cent to trade at USD 59.42 per barrel.
The 10-year government bond yield was at 6.48 per cent in morning trade.