The rupee slipped 3 paise to settle at 83.19 (provisional) against the US dollar on Tuesday amid a strong American currency and outflow of foreign funds.
A positive equity market sentiment and softer crude oil prices, however, provided a cushion and restricted the fall in the Indian currency, forex traders said.
At the interbank foreign exchange, the domestic currency opened at 83.17 and traded between a peak of 83.10 and a low level of 83.21 against the greenback during intra-day deals. The local unit settled at 83.19 (provisional) against the dollar, registering a loss of 3 paise from its previous close.
On Friday, the domestic currency settled at 83.16 against the dollar. Forex markets were closed on Monday on account of Christmas.
Anuj Choudhary, Research Analyst at Sharekhan by BNP Paribas, said the Indian rupee depreciated on recovery in the US dollar and FII outflows. However, positive domestic markets and a decline in crude oil prices cushioned the downside.
He said the rupee is expected to trade with a slight positive bias amid rising expectations of a reduction in interest rates by the US Federal Reserve.
"However, demand for the US dollar from imports and selling pressure from FIIs may cap the upside. Geopolitical tensions in the Red Sea may also weigh on rupee at higher levels. Traders may take cues from house price index data from the US. USD-INR spot price is expected to trade in a range of Rs 82.90 to Rs 83.50," Choudhary added.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.02 per cent higher at 101.35 on Tuesday.
Global oil price benchmark Brent crude inched up 0.03 per cent to USD 79.09 per barrel.
In the domestic equity market, the 30-share BSE Sensex rose by 229.84 points or 0.32 per cent to settle at 71,336.80. The broader NSE Nifty climbed 91.95 points or 0.43 per cent to 21,441.35.
The RBI data released on Friday showed that India's forex reserves jumped USD 9.112 billion to USD 615.971 billion in the week ended December 15 and the quantum of increase was one of the highest for a week.
Foreign institutional investors (FIIs) were net sellers in the equity market on Friday as they offloaded shares worth Rs 2,828.94 crore, according to exchange data.
