The rupee gained 10 paise to 81.72 against the US dollar in early trade on Tuesday tracking a weak American currency and a firm trend in domestic equities.
Forex traders said significant foreign fund inflows and crude oil prices below USD 80 a barrel also supported the local unit.
At the interbank foreign exchange, the domestic unit opened at 81.75 against the dollar and then climbed to 81.72, registering a rise of 10 paise over its previous close.
On Friday, the rupee closed at 81.82 against the US currency.
Forex and equity markets were closed on Monday on account of 'Maharashtra Day'.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.12 per cent to 102.03.
Brent crude futures, the global oil benchmark, advanced 0.15 per cent to USD 79.43 per barrel.
Forex traders said investors are waiting for cues from the paramount US FOMC meeting beginning later in the day. Market now awaits the Federal Open Market Committee (FOMC) outcome on May 3.
Markets are wondering if it will be the last hike for the season or if a surprise still awaits. "A 25bps hike with a cautiously hawkish tone amid resilient economic data shall again pump the dollar above 103 levels," CR Forex Advisors MD Amit Pabari said.
In the domestic equity market, the 30-share BSE Sensex advanced 336.5 points or 0.55 per cent to 61,448.94. The broader NSE Nifty rose 96.50 points or 0.53 per cent to 18,161.50.
Foreign Institutional Investors (FIIs) were net buyers in the capital market on Friday as they purchased shares worth Rs 3,304.32 crore, according to exchange data.
On the domestic macroeconomic front, record GST collections and a four-month high manufacturing PMI are aiding bullish sentiments.
The GST collection in April rose by 12 per cent annually to over Rs 1.87 lakh crore, touching an all-time monthly high, the finance ministry data released on Monday said.
Manufacturing activities in India accelerated further and touched a four-month high in April. The seasonally adjusted S&P Global India Manufacturing Purchasing Managers' Index (PMI) increased from 56.4 in March to 57.2 in April.
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