The rupee gained 11 paise to 82.20 against the US dollar in early trade on Tuesday supported by sustained foreign fund inflows.
Forex traders said a weak trend in domestic equities and strength of the American currency in the overseas market weighed on investor sentiments.
At the interbank foreign exchange, the domestic unit opened at 82.22 against the dollar and then rose to 82.20, registering a gain of 11 paise over its previous close.
On Monday, the rupee closed at 82.31 against the US currency.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.06 per cent to 102.37.
Oil prices on Tuesday were higher for the second day as US plans to purchase oil for the Strategic Petroleum Reserve. However, wildfires in Canada have added to the ongoing supply worries. Brent crude futures were up by 31 cents at $75.54 per barrel and US West Texas Intermediate Crude rose by 27 cents at $71.38 per barrel.
The government on May 15 has canceled windfall tax on crude petroleum to nil from the earlier 4,100 per tonne. The windfall tax on aviation turbine fuel, petrol and diesel was already at nil.
"Going further, rising oil prices could remain a concern for the local unit as the US begins refilling its strategic reserve and has confirmed purchasing up to 3 million barrels of oil for the SPR," CR Forex Advisors MD-Amit Pabari said.
"Rising USD and oil, and weakening EM peer currencies make clear room for the USD-INR pair to move above 82.50 - 82.80 levels in the next 15-20 sessions," Pabari added.
Foreign Institutional Investors (FIIs) were net buyers in the capital market on Monday as they purchased shares worth Rs 1,685.29 crore, according to exchange data.
The markets on Tuesday opened in green with Sensex at 62,350.96, up by 5,25 points and Nifty down by 2.30 points at 18,396.55. Wipro, Infosys, Tata Steel, Power Grid and Nestle were the top gainers whereas ITC, Maruti, Mahindra and Mahindra, Kotak Bank and IndusInd Bank were the top losers.
Meanwhile, India's exports contracted by 12.7 per cent, for the third month in a row, to USD 34.66 billion in April even as the trade deficit reduced to a 20-month low of USD 15.24 billion, the government data showed on Monday.
With inputs from PTI
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