The rupee rebounded by 12 paise to end at 73 per US dollar Tuesday on increased selling of the greenback by exporters and softening crude oil prices.
Globally, the dollar edged up even as investor sentiment remained cautious amid the US midterm elections.
At the Interbank Foreign Exchange (forex) market, the rupee opened on a firm note at 72.98 from Monday's close of 73.12. It gained further ground to hit a high of 72.90, driven by dollar selling by exporters.
The local unit, however, pared the initial gains and finally settled the day at 73 to the US dollar, up 12 paise.
The rupee had plunged 67 paise to close at 73.12 Monday.
"Ahead of the US mid-term elections, ICE Dollar Index has been trading flat at 96.45. Dollar dipped against the euro and sterling, but made up ground on the Japanese yen as traders kept their options open after the US currency's bumper year so far," said V K Sharma, Head PCG and Capital Markets Group, HDFC Securities.
Forex dealers said bullish trend in the equity market as well as easing crude oil prices supported the rupee's upward movement.
Globally, Brent crude, the international benchmark, was trading 0.67 per cent lower at USD 72.68 per barrel.
"Oil prices declined after Washington granted sanctions exemptions to top buyers of Iranian oil, lifting supply concerns and turning the market's focus to worries that an economic slowdown may curb fuel demand. Brent crude has been sustaining below USD 73 a barrel," Sharma said.
Foreign funds pulled out Rs 499.71 crore from the capital markets on a net basis Tuesday, while domestic institutional investors bought shares worth Rs 118.69 crore, provisional data showed.
Meanwhile, the benchmark BSE Sensex gained 40.99 points or 0.12 per cent and settled at 34,991.91 Tuesday. The wide-based Nifty ended the day at 10,530, higher by 6 points.
The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 73.0097 and for rupee/euro at 83.2632. The reference rate for rupee/British pound was fixed at 95.3020 and for rupee/100 Japanese yen at 64.37.
According to rating agency Crisil, the rupee may appreciate to 71 against the dollar by March 2019 on positive factors like the dip in crude prices and the USD 75-billion currency swap with Bank of Japan.