The rupee appreciated 7 paise to close at 83 (provisional) against the US dollar on Monday, on softness in the American currency and easing crude oil prices.
However, weak domestic markets and foreign fund outflows capped sharp gains, forex traders said.
At the interbank foreign exchange market, the local unit opened at 83.01 against the greenback. The unit hit an intra-day high of 82.98 and a low of 83.02.
The local unit finally settled at 83 (provisional) against the dollar, higher by 7 paise from its previous close of 83.07.
"We expect the rupee to trade with a slight positive bias, positive global equities and a slight correction in the greenback.
"However, any bounce back in crude oil prices amid ongoing geopolitical tensions in the Middle East and selling pressure from foreign investors may weigh on the rupee at higher levels," said Anuj Choudhary, Research Analyst, Sharekhan by BNP Paribas.
Traders may take cues from India's CPI and IIP data.
"Headline inflation is expected to ease to 5.09 per cent from 5.69 per cent. Investors may remain vigilant ahead of US inflation data on Tuesday," Choudhary said, adding the USD-INR spot price is expected to trade in range of Rs 82.80-83.20.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.04 per cent higher at 104.15.
Brent crude futures, the global oil benchmark, fell 0.51 per cent to USD 81.77 per barrel.
On the domestic equity market front, the Sensex declined 523 points, or 0.73 per cent, to 71,072.49. The Nifty fell 166.45 points, or 0.76 per cent, to 21,616.05.
Foreign Institutional Investors (FIIs) were net buyers in the capital markets on Friday as they bought shares worth Rs 141.95 crore, according to exchange data.
Meanwhile, India's forex reserves jumped by USD 5.736 billion to USD 622.469 billion for the week ended February 2, the Reserve Bank said on Friday.
In the previous week, the overall reserves had increased by USD 591 million to USD 616.733 billion.
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