The rupee consolidated in a narrow range and settled higher by 1 paisa at 83.51 against the US dollar on Tuesday, amid a negative trend in domestic equities and strong dollar demand.
Forex traders said elevated significant foreign fund outflows in the international market dented investors' sentiments.
At the interbank foreign exchange market, the local unit opened at 83.48 against the greenback. The unit hit an intra-day high of 83.47 and a low of 83.52 against the greenback.
The domestic unit finally settled at 83.51 (provisional) against the dollar, 1 paisa higher than its previous close.
On Monday, the rupee settled 7 paise lower at 83.52 against the US dollar.
The Indian rupee traded almost flat on weak domestic markets and positive US Dollar. FII outflows also weighed on the rupee, said Anuj Choudhary Research Analyst, Sharekhan by BNP Paribas.
However, a soft tone in crude oil prices cushioned the downside. The US Dollar gained on weak Asian currencies after the Australian Dollar fell amid a less-hawkish-than-expected tone of the Reserve Bank of Australia (RBA).
"We expect the rupee to trade with a slight negative bias on weak domestic markets and positive dollar amid geopolitical tensions in the Middle East.
"However, softness in crude oil prices and positive European and Asian markets may support the rupee at lower levels. Any intervention by the Reserve Bank of India (RBI) may also support the domestic currency. USDINR spot price is expected to trade in a range of Rs 83.30 to Rs 83.75," Choudhary added.
Brent crude futures, the global oil benchmark, fell 0.10 per cent to USD 83.25 per barrel.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was at 105.26, higher by 0.20 per cent.
On the domestic equity market front, Sensex declined 383.69 points, or 0.52 per cent, to settle at 73,511.85 points. The Nifty fell 140.20 points, or 0.62 per cent, to close at 22,302.50 points.
Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Monday, as they offloaded shares worth Rs 2,168.75 crore, according to exchange data.
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