The rupee appreciated 10 paise to 82.66 against the US dollar in early trade on Tuesday on the back of a positive trend in domestic equities and relatively weaker greenback.
However, foreign capital outflows restricted the gain in the domestic unit, forex traders said.
At the interbank foreign exchange, the domestic unit opened strong at 82.68 against the dollar, then gained further ground to 82.66, a rise of 10 paise over its last close.
In early deals, it was moving in a tight range of 82.69-82.65.
On Monday, the rupee fell 68 paise to close at a one-month low of 82.76 against the US dollar.
Meanwhile, the dollar index declined 0.15 per cent to 103.46.
Brent crude futures advanced 0.98 per cent to $81.78 per barrel.
This week, the key trigger for the markets is likely to be the decision of the RBI's Monetary Policy Committee on interest rate that will be announced on Wednesday.
Economists at SBI on Monday said they expect the Reserve Bank of India (RBI) to hit the pause button on an interest rate hike at its upcoming monetary policy review this week.
However, according to some experts, the RBI is likely to settle for a smaller 25 basis points repo rate hike as retail inflation is showing signs of softening and the US Fed moderating the pace of increase in its benchmark interest rate.
On Tuesday, BSE Sensex was trading 89.98 points or 0.15 per cent higher at 60,596.88 points. NSE Nifty advanced 23.95 points or 0.13 per cent to 17,788.55.
Also read: Sensex, Nifty rise ahead of RBI's rate decision; Adani stocks arrest slide
Foreign Institutional Investors (FIIs) were net sellers in the capital market on Monday as they offloaded shares worth ₹1,218.14 crore, according to exchange data.
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