The rupee appreciated 8 paise to 83.44 against the US dollar in early trade on Thursday, as the American currency retreated from its elevated levels.
Forex traders said a negative trend in domestic equities and foreign fund outflows weighed on the local unit and restricted the up move.
At the interbank foreign exchange market, the local unit opened at 83.49 against the greenback. It later touched 83.44 in the initial trade, registering a rise of 8 paise from its previous close.
On Wednesday, the rupee stayed range-bound and settled 1 paisa lower at 83.52 against the US dollar.
"Indian rupee was sold against the dollar as FPIs continued to sell stocks worth over ₹6,000 crore on Wednesday and bought dollars, keeping the US dollar higher," said Anil Kumar Bhansali, Head of Treasury and Executive Director of Finrex Treasury Advisors LLP.
Dollar buying could reemerge despite US dollar selling by the Reserve Bank of India (RBI) to protect the rupee, Bhansali added.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading at 105.51, lower by 0.03 per cent.
"The US FED speakers warned that interest rates could remain higher for longer. More speakers would give their rhetoric on Thursday and Friday. The dollar index was stable at 105.54 while the US 10-year bond yield rose from 4.46 per cent to 4.50 per cent," Bhansali said.
Brent crude futures, the global oil benchmark, rose 0.43 per cent to $83.94 per barrel.
On the domestic equity market front, the 30-share BSE Sensex declined 176.2 points or 0.24 per cent to 73,290.19 in early trade. The NSE Nifty fell 49.75 points or 0.22 per cent to 22,252.75 points.
Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Wednesday, as they offloaded shares worth ₹6,669.10 crore, according to exchange data.