The rupee strengthened on Tuesday but near-term appreciation will be limited as most market participants are long on the U.S. dollar, traders said.
The rupee ended at 82.9225 against the dollar, up 0.13 per cent as compared to its close of 83.03 on Monday.
Dollar demand from importers, oil companies, and speculators had pushed the rupee to the day's low of 83.01, traders said.
"Both importers and traders are long on the dollar," a foreign exchange trader at a state-run bank said.
The bar for the rupee's appreciation seems to have set in around 82.80 levels for the near-term, weaker than 82.50 seen in the recent past, the trader added.
The rupee's Asian peers traded mixed on Tuesday.
The Korean won rose, the Thai baht weakened, and the Chinese yuan was little changed after Monday's sharp rally.
The dollar index inched up 0.2 per cent in Asia hours to 104.76 while Brent crude oil futures climbed to $90.87 per barrel, hovering near their highest levels since November 2022.
The threshold for the rupee's appreciation keeps weakening but there is a limit on the depreciation too, said Anindya Banerjee, head of foreign exchange research at Kotak Securities, referring to the Reserve Bank of India's interventions to limit the rupee's decline.
Investors keenly await inflation figures from the US and India. While India's consumer inflation numbers are due later today, the US will report inflation data on Wednesday.
The rupee is unlikely to react much to India's inflation print which is expected to stay elevated but any upside surprises in US inflation could hurt the rupee.
According to a Reuters poll, the core consumer price index in the US is expected to rise 0.2 per cent month-on-month in August, the same rate of increase seen in July.