The rupee appreciated 8 paise to 81.60 against the US dollar in early trade on Tuesday as foreign capital inflows and a firm trend in the domestic equity market boosted investor sentiments.
Besides, a weak American currency in the overseas market helped the unit, forex dealers said.
At the interbank foreign exchange, the rupee opened strong at 81.58 against the dollar, then inched lower to quote at 81.60, registering a rise of 8 paise over its previous close.
In the previous session on Monday, the rupee rose 3 paise to end at 81.68 against the dollar.
The dollar index slipped 0.38 per cent to 106.28.
Brent crude futures surged 1.39 per cent to $84.35 per barrel.
BSE Sensex was trading 164.06 points or 0.26 per cent higher at 62,668.86. Similarly, NSE Nifty rose 59.10 points or 0.32 per cent to 18,621.85.
Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Monday as they sold shares worth ₹935.88 crore, according to exchange data.
S&P Global Ratings on Monday cut India's economic growth forecast for the current fiscal year to 7 per cent but said the domestic demand-led economy will be less impacted by the global slowdown.