The Indian rupee appreciated by 22 paise to 71.71 against the US dollar in early deals as some easing in global crude oil prices boosted forex market sentiments.
The domestic unit started the session on a positive note and held its ground in early transactions at the Interbank Foreign Exchange.
On Monday, the rupee had settled at 71.93 against the US currency.
Global oil benchmark Brent crude cooled 1.23 per cent to USD 68.06 per barrel after the Pentagon on Monday distanced itself from US President Donald Trump's threats to bomb Iranian cultural sites despite international prohibitions on such attacks.
Meanwhile, domestic equity market opened on a positive note. After hitting a high of 41,135.47, the 30-share BSE Sensex was trading 450 points or 1.11 per cent higher at 41,126.63. Similarly, the broader NSE Nifty rallied 132.25 points or 1.10 per cent to 12,125.30.
Foreign funds sold shares worth Rs 103.84 crore in the capital markets on a net basis on Monday, provisional data showed.
The dollar index, which gauges the greenback's strength against a basket of six currencies, was trading marginally higher at 96.66.
Investors have been selling riskier assets and rushing to safe haven assets amid the US-Iran tensions that spurt in the last few days after an American drone strike killed top Iranian general Qasem Soleimani last week.