The rupe appreciated 5 paise to 83.11 (provisional) against the US dollar on Tuesday, following a weak greenback against major currencies overseas amid a muted trend in domestic equities.
At the interbank foreign exchange market, the local unit opened at 83.14 against the greenback. Moving in a very tight range, the unit hit an intraday low of 83.15 and a high of 83.11 against the greenback.
The local unit finally settled at 83.11 against the dollar, higher by 5 paise (provisional) from its previous close.
On Monday, the rupee depreciated 5 paise to 83.16 against the US dollar.
According to Anuj Choudhary, Research Analyst, Sharekhan by BNP Paribas, the rupee gained on Tuesday on the softening of the US Dollar and a decline in crude oil prices from higher levels.
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However, weak domestic markets capped sharp gains. The US Dollar eased slightly on rising risk appetite in global markets.
"We expect the rupee to trade with a slight negative bias on month-end Dollar demand from importers and concerns over geopolitical tensions in the Middle East and the Red Sea.
"Any recovery in the US Dollar or crude oil prices may also weigh on the rupee. However, a rise in risk appetite in global markets may support the rupee at lower levels," Choudhary said.
"Investors may remain cautious ahead of the US FOMC meeting and India's Budget later this week. USD/INR spot price is expected to trade in a range of ₹82.90 to ₹83.40," he added.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.06 per cent lower at 103.55.
Brent crude futures, the global oil benchmark, surged 0.27 per cent to $82.62 per barrel.
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On the domestic equity market front, Sensex declined 801.67 points, or 1.11 per cent, to 71,139.90 points. The Nifty fell 215.50 points, or 0.99 per cent, to 21,522.10 points.
Foreign Institutional Investors (FIIs) were net buyers in the capital markets on Monday as they purchased shares worth ₹110.01 crore, according to exchange data.