The rupee gained 5 paise to close at 82.76 (provisional) against the US dollar on Monday, tracking positive domestic equities.
However, sustained foreign fund outflows and a stronger American currency in the overseas market dented investor sentiments, forex traders said.
At the interbank foreign exchange market, the local unit opened at 82.73 against the US dollar and moved in a range of 82.71 to 82.77 in the day trade.
The rupee finally settled 5 paise higher at 82.76 (provisional) against the previous close of 82.81 on Friday.
The Indian rupee began the week on a positive note, adjusting Friday's weakness in the dollar index and lower crude oil prices, said Dilip Parmar, Research Analyst, HDFC Securities.
The near-term focus will remain on the RBI monetary policy decision scheduled on Thursday. The market is already pricing in the status quo and don’t expect any cut this year following inflation worries, Parmar said.
The RBI monetary policy announcement on Thursday is the key event this week. The RBI Governor-headed six-member Monetary Policy Committee's (MPC) meeting is scheduled for August 8-10. The policy decision will be announced on August 10 by Governor Shaktikanta Das.
From the technical side, spot USDINR has given a bullish breakout on the weekly chart and is eyeing an all-time high of 83.30 and may hold the support at 82.25, the long-term moving average line.
The dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.33 per cent to 102.35.
Meanwhile, Brent crude futures, the global oil benchmark, declined 0.94 per cent to USD 85.43 per barrel.
On the domestic equity market front, the 30-share BSE Sensex closed 232.23 points or 0.35 per cent higher at 65,953.48. The broader NSE Nifty rose 80.30 points or 0.41 per cent to 19,597.30.
Foreign institutional investors (FIIs) were net sellers in the capital markets on Friday as they offloaded shares worth Rs 556.32 crore, according to exchange data.
Meanwhile, India's forex reserves dropped by USD 3.165 billion to USD 603.87 billion in the week ended July 28, the RBI said on Friday. This is the second consecutive weekly drop in reserves after the USD 1.987 billion decline to USD 607.035 billion in the previous week.
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