The rupee depreciated by 5 paise to close at 83.92 (provisional) against the American currency on Tuesday, on overnight jump in crude oil prices and a surge in commodity prices.
However, positive domestic markets and a soft US dollar cushioned the downside, forex traders said.
At the interbank foreign exchange market, the local unit opened at 83.91 and touched an intra-day low of 83.95 against the US dollar.
The domestic currency finally settled at 83.92 (provisional), 5 paise lower from its previous close.
On Monday, the Indian rupee settled for the day 3 paise higher at 83.87 against the American currency.
"We expect the rupee to trade with a slight positive bias on rise in global risk sentiments amid dovish Fed speak and rising expectations of a rate cut by the Fed in September.
"However, geopolitical tensions in the Middle East and rising crude oil prices may cap sharp upside. Traders may take cues from US consumer confidence data," Anuj Choudhary, Research Analyst at Sharekhan by BNP Paribas, said.
Forex traders said the rupee is likely to remain within a narrow range as the Reserve Bank of India has been actively intervening in the market, consistently absorbing inflows.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.05 per cent lower at 100.79.
Brent crude, the global oil benchmark, declined 0.87 per cent to $80.72 per barrel.
On the domestic equity market front, Sensex rose 13.65 points, or 0.02 per cent, to close at 81,711.76 points. The Nifty closed 7.15 points, or 0.03 per cent, up at 25,017.75 points.
Foreign Institutional Investors (FIIs) were net buyers in the capital markets on Monday, as they purchased shares worth ₹483.36 crore, according to exchange data.
Reserve Bank Governor Shaktikanta Das on Monday said the central bank is constantly working on policies, systems, and platforms to make the country's financial sector strong, nimble and customer centric.