The rupee gained 21 paise to 82.38 against the US dollar in early trade on Tuesday supported by a bullish trend in domestic markets and steady foreign fund inflows.
However, a surge in crude oil prices capped sharp gains for the local unit, forex traders said.
At the interbank foreign exchange, the domestic unit opened at 82.42, then touched a high of 82.38 against the American currency, registering a rise of 21 paise over its last close.
On Monday, the rupee had settled at 82.59 against the dollar.
Softness in the US dollar and sustained FII inflows supported the rupee, forex traders said adding that the strength in crude oil prices remains a concern for the rupee, as a sharp surge in prices could limit its gains.
The dollar index fell 0.15 per cent to 101.81.
Brent crude futures, the global oil benchmark, rose 0.54 per cent to $78.11 per barrel.
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"Markets now brace for a slew of inflation data later in the week, CPI from India and US on July 12, which could give clues to the US FED's rate hiking path," said Anil Kumar Bhansali Head of Treasury and Executive Director Finrex Treasury Advisors LLP.
In the domestic equity market, BSE Sensex was trading 342.26 points or 0.52 per cent higher at 65,686.43. NSE Nifty advanced 96 points or 0.5 per cent to 19,451.90.
Foreign Institutional Investors (FIIs) were net buyers in the capital markets on Monday as they purchased shares worth ₹588.48 crore, according to exchange data.