The rupee strengthened 6 paise to settle at 82.70 against the US dollar on Tuesday as investor confidence was lifted by the US dollar's weakness against its major international rivals.
However, the rupee's appreciation was constrained, according to currency dealers, by subdued domestic stocks, unabated outflows of foreign money, and rising crude prices.
On the interbank foreign exchange market, the local currency started off strongly at 82.68 against the dollar and achieved an intraday high of 82.62 and a low of 82.80.
It finally settled at 82.70, up 6 paise over its previous close of 82.76.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, slipped 0.08 per cent to 103.54.
Brent crude oil futures rose 1.69 percent to USD 82.36 per barrel.
On the domestic equity market front, the 30-share BSE Sensex declined 220.86 points or 0.37 per cent to end at 60,286.04, while the broader NSE Nifty slipped 43.10 points or 0.24 per cent to 17,721.50.
According to exchange data, Foreign Institutional Investors (FIIs) sold shares worth Rs 1,218.14 crore on Monday, making them net sellers in the capital markets.
The Monetary Policy Committee of the RBI's decision on the interest rate, which will be made public on Wednesday, is likely to be this week's major market catalyst.
Core inflation in India has been falling sequentially, according to S&P Global Ratings, and the elevated 6.25 percent policy rate reduces the need for additional rate increases.
At its upcoming monetary policy review, the Reserve Bank of India (RBI) is expected to put a hold on raising interest rates, according to economists at SBI.
However, other experts believe that the RBI would choose for a 25 basis point repo rate increase because retail inflation is beginning to moderate and the US Fed is slowing the rate of growth of its benchmark interest rate.
With inputs from Agencies.
