The Indian rupee traded in a tight range appreciated 3 paise to 83.94 against the US dollar in early trade on Tuesday on positive domestic macroeconomic data.
However, a muted trend in domestic equities and foreign fund outflows capped the gains for the local unit.
At the interbank foreign exchange, the rupee opened at 83.95 against the greenback and traded in a tight range. In initial trade it touched 83.94, registering a gain of 3 paise over its previous close.
On Monday, the rupee settled for the day lower by 2 paise at 83.97 against the American currency.
Forex traders said market participants are treading cautiously amid a landscape fraught with geopolitical uncertainties and a consolidating US Dollar.
However, the Indian rupee is trading in a narrow range and the stability is underpinned by several factors: a narrowing fiscal deficit, stable oil prices, stronger economic growth and the RBI's substantial reserves of USD 675 billion, ready to be deployed if needed, CR Forex Advisors MD Amit Pabari said.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.02 per cent lower at 103.11.
Brent crude, the global oil benchmark, declined 0.74 per cent to USD 81.69 per barrel.
Traders are awaiting data from the US including the US CPI data to gauge the FED outlook on interest rates, said Anil Kumar Bhansali, Head of Treasury and Executive DirectorFinrex Treasury Advisors LLP.
On the domestic macroeconomic front, India's direct tax mop up rose by 22.5 per cent over last year. India's IIP stood at 4.2 per cent for June-24.
The retail inflation eased to 3.54 per cent with food prices falling after a good monsoon. It was the lowest in last 5 years and has dipped below RBIs targetted rate of 4 per cent.
On the domestic equity market front, Sensex declined 100.17 points, or 0.13 per cent, to 79,548.75 points. The Nifty fell 19.60 points, or 0.08 per cent, to 24,327.40 points.
Foreign institutional investors (FIIs) were net sellers in the capital markets on Monday as they offloaded shares worth Rs 4,680.51 crore, according to exchange data.
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