The way currency markets function is that they are self-enforcing. An increased demand for a particular currency tends to drive up its value, and as expectations set in about further gains the demand only increases. This is the imperative that creates short-term volatility. In the longer term, however, the key factors that investors look towards, include economic growth and stability, with effects on consumption, employment levels and market confidence. Inflation and price stability, are also important. 
This podcast presents Adit Jain's thoughts on the outlook for the rupee.