The rupee appreciated by 22 paise to 70.72 against the US dollar in early trade on Tuesday as foreign fund inflows and easing crude oil prices enthused investors.
At the interbank foreign exchange the rupee opened at 70.72, registering a rise of 22 paise over its previous close.
Rupee had settled at 70.94 against the US dollar on Monday.
The domestic unit however pared some initial gains and was trading at 70.79 against the US dollar at 1010 hrs.
Forex traders said fresh foreign fund inflows, higher opening in domestic equities and easing crude oil prices supported the rupee.
Foreign institutional investors (FIIs) remained net buyers in the capital market, putting in Rs 2,684.05 crore on Monday, according to provisional exchange data.
Brent crude futures, the global oil benchmark, fell 0.57 per cent to trade at USD 64.40 per barrel.
Domestic bourses opened on a cautious note on Tuesday with benchmark indices Sensex trading 108.01 points higher at 39,198.04 and Nifty up 20.10 points at 11,620.30.
The dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.06 per cent to 98.65.
The 10-year government bond yield was at 6.75 per cent in morning trade.