The gains has been largely driven by foreign fund inflows into rallying local equities, which received over $3.5 b illion i n 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.