This is the fifth straight session of gain for the rupee during which it has appreciated by 73 paise.

The rupee recovered from initial losses to settle higher by 5 paise at 71.66 against the US dollar on Wednesday, extending gains for a fifth straight session on the back of firm domestic equities and Asian currencies like the Chinese yuan. Forex traders said the uptick in domestic stocks enthused investors, following which the domestic unit gained strength and recovered from early losses. At the interbank foreign exchange market, the local unit witnessed heavy volatility. During the day, the domestic unit shuttled between a high of 71.60 and a low of 71.84.

The rupee finally settled at 71.66, higher by 5 paise over its previous close.

"Rupee is driven more by global factors rather than domestic factors. Since Chinese yuan has stabilised in the last 3-4 sessions, the rupee has appreciated," said Rushabh Maru, research analyst - currency and commodity, Anand Rathi Shares and Stock Brokers.

Mr Maru further noted that the focus of market participants will now shift to India's key macroeconomic data.

"Though CPI is expected to rise marginally in August, it is within a comfort zone of the RBI. Hence the RBI may cut repo rate by 25 bps in the next policy meeting," he said.

The rupee on Monday had closed at 71.71 against the US dollar. Forex market was closed on Tuesday on account of Muharram.

This is the fifth straight session of gain for the rupee during which it has appreciated by 73 paise.

Foreign institutional investors (FIIs) remained net sellers in the capital market, pulling out Rs 188.08 crore on Monday, according to provisional exchange data.

Brent crude futures, the global oil benchmark, rose 0.93 per cent to trade at $62.96 per barrel.

Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.24 per cent to 98.56. The 10-year government bond yield was at 6.68 per cent on Wednesday.

On the domestic market front, the 30-share index settled 125.37 points or 0.34 per cent higher at 37,270.82. Similarly, the broader NSE Nifty rose 32.65 points, or 0.30 per cent, to close at 11,035.70.

The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 71.5886 and for rupee/euro at 71.5886. The reference rate for rupee/British pound was fixed at 87.8292 and for rupee/100 Japanese yen at 66.98.

Meanwhile, on the global front, China has said that it will exempt 16 categories of US products from tariffs. The announcement came ahead of the fresh round of trade talks next month.

The top two economies of the world have been locked in a bitter trade war since last year, imposing tit-for-tat tariffs on goods worth billions of dollars. For the past 10 months, both the countries are negotiating a trade deal, but without any success.