The rupee rebounded from its all-time low level and inched higher by 2 paise to 78.02 against the US dollar in opening trade on Tuesday.
At the interbank foreign exchange, the rupee opened at 78.02 against the dollar, registering a rise of 2 paise over its previous close.
In initial deals, the domestic unit also surged to 77.90 against the American currency but could not hold on to the gains and touched 78.06.
On Monday, the rupee depreciated by 11 paise to close at a fresh lifetime low of 78.04 against the US dollar.
The Indian rupee opened flat against the dollar on Tuesday as gains from easing domestic inflation worries negated the overnight strength of the greenback, said Sriram Iyer, Senior Research Analyst at Reliance Securities.
Retail inflation eased to 7.04 per cent in May, mainly on account of softening food and fuel prices as the government as well as the RBI stepped in to control spiraling price rise by way of duty cuts and repo rate hikes.
However, the inflation print stayed above the Reserve Bank's upper tolerance level of 6 per cent for the fifth month in a row. This may prompt the central bank to further hike the repo rate at its next policy meeting in August.
Meanwhile, crude oil prices remained elevated on Tuesday morning and kept appreciation bias limited.
Asian and emerging market peers have started mixed, but higher inflation readings could keep bias weak for the currencies, Iyer noted.
The dollar index, which gauges the greenback’s strength against a basket of six currencies, rose 0.01 per cent to 105.08, supported by fears of a global economic slowdown and expectations of an aggressive rate hike path from the US Fed.
Global oil benchmark Brent crude futures fell 0.02 per cent to $122.25 per barrel.
On the domestic equity market front, BSE Sensex was trading 145.13 points or 0.27 per cent lower at 52,701.57, while the broader NSE Nifty declined 85.30 points or 0.54 per cent to 15,689.10.
Foreign institutional investors were net sellers in the capital market on Monday as they offloaded shares worth Rs 4,164.01 crore, as per exchange data.