The rupee on Tuesday staged a mild recovery after two sessions of decline and edged higher by 8 paise to end at 68.04 against the US dollar on fresh selling of the American currency by banks and exporters.
Weakness in the greenback against other currencies overseas along with a positive closing of local bourses too supported the rupee recovery momentum.
The domestic currency on Monday hit a fresh 16-month low of 68.12 amid weak global cues.
"The rupee rebounded from its previous 16-month low and traded higher against dollar in the morning session on the back of speculation of selling of USD by banks and also as signs of easing tensions between the US and China prompted USD to give away some of its recent gains. However, the rupee's gains were limited as Brent remained stubbornly close to 80," Anand James, Chief Market Strategist, Geojit Financial Services, said.
Meanwhile, investors turned a bit cautious ahead of the US Federal Reserve's May policy meeting minutes release on Wednesday even as US bond-yields have stabilised.
In the meantime, global crude prices rose towards the key $80 a barrel underpinned by concern that falling Venezuelan crude output and a potential drop in Iranian exports could further tighten global supply.
The Brent crude futures, an international benchmark, was trading higher at $79.79 a barrel in early Asian trade.
Reversing a two-day downtrend, the rupee resumed higher at 68.03 against Monday's close of 68.12 at the Interbank Foreign Exchange (forex) market on fresh dollar unwinding.
It later moved in a tight range of 67.92 and 68.09 most part of the day with positive bias before ending at 68.04, showing a gain of 8 paise, or 0.12 per cent.
The RBI, meanwhile, fixed the reference rate for the dollar at 68.0187 and for the euro at 80.0716.
The yield on the benchmark 10-year government bond maturing in 2028 held steady at 7.81 per cent.
The dollar index, which measures the greenback's value against a basket of six major currencies, was higher at 93.38.
In the cross currency trade, however, the Indian unit fell back against the pound sterling to finish at 91.51 per pound from 91.41 and also retreated against the Japanese yen to settle at 61.34 per 100 yens as compared to 61.23 earlier.
The home unit remained weak against the euro and closed at 80.34 from 80.10 on Monday.
Elsewhere, the common currency euro is trading little higher against the US currency after recovering from overnight fresh 2018 lows amid prospect of a new coalition government in Italy.
In forward market on Tuesday, premium for dollar finished virtually stable in the absence of any market-moving factors.
The benchmark six-month forward premium payable in September and the far-forward February 2019 contract both settled unchanged at 93-95 and 228-230 paise, respectively.