The rupee appreciated by 32 paise to 71.70 against the US dollar in early trade on Tuesday amid a revival of US-China trade talk hopes and gains in the domestic equity market.
The rupee on Monday had declined by 36 paise to close below the 72 level against the US currency for the first time in nine months, hit by a 'flash crash' in global currencies due to uncertainty over the trade front.
At the interbank foreign exchange on Tuesday, the rupee opened at 71.70, registering a rise of 32 paise over its previous close of 72.02.
The domestic unit pared some gains and was trading at 71.85 against the dollar at 1001 hrs.
Forex traders said higher opening in domestic equities and the latest remark by US President Donald Trump on trade talks with China enthused investors.
Trump said his trade negotiators had received two "very good calls" from China and it was a sign that China is serious about reaching a deal and that talks would begin soon.
"I think we're going to have a deal because now we're dealing on proper terms. They understand and we understand," Trump said.
Market participants, however, said rising crude oil prices and foreign fund outflows weighed on local currency.
Foreign institutional investors (FIIs) remained net sellers in the capital market, pulling out Rs 752.90 crore on Monday, according to provisional exchange data.
The dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.08 per cent to 98.00.
Brent crude futures, the global oil benchmark, rose 0.51 per cent to trade at USD 59.00 per barrel.
Domestic bourses opened on a positive note on Tuesday with benchmark indices Sensex trading 83.20 points higher at 37,577.32 and Nifty up 45.80 points at 11,103.65.
The 10-year government bond yield was at 6.44 per cent in morning trade.