The rupee rebounded from the five month low and appreciated by 26 paise to 70.47 against the US dollar in early trade Tuesday amid positive opening in domestic equity market.
On Monday, the domestic currency had suffered the biggest single-day drop in past six years -- to close at a five-month low of 70.73, owing to heavy capital outflows by investors anxious over the US-China trade tension, a sharp devaluation in yuan and uncertainty over Kashmir issue.
At the interbank foreign exchange, the rupee opened at 70.80, but gained momentum and touched a high of 70.47, registering a rise of 26 paise over its previous close.
The domestic unit pared some gains and was trading at 70.60 against the dollar at 0949 hrs.
Forex traders said positive opening in domestic equity market supported the domestic unit, however, foreign fund outflows and rising crude oil prices weighed on local currency.
Besides, rupee is expected to trade in a narrow range ahead of the outcome of Reserve bank of India's monetary policy review meet scheduled to be released on Wednesday.
"Near term focus will be on the RBI's monetary policy meeting scheduled to announce outcome on 7th August. Market has already priced in 25 bps cut in interest rate amid lower core CPI and persistent economic slowdown," said V K Sharma, Head PCG & Capital Markets Strategy, HDFC Securities.
Meanwhile, foreign institutional investors (FIIs) remained net sellers in the capital markets, pulling out Rs 2,016.73 crore on Monday, according to provisional exchange data.
The dollar index, which gauges the greenback's strength against a basket of six currencies, inched up 0.16 per cent to 97.67.
Brent crude futures, the global oil benchmark, rose 0.94 per cent to trade at USD 60.37 per barrel.
Domestic bourses opened on a bullish note on Tuesday with benchmark indices Sensex trading 203.28 points higher at 36,899.02 and Nifty up 66.40 points at 10,929.00.
The 10-year government bond yield was at 6.36 per cent in morning trade.
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