The rupee closed at 83.4250 against the U.S. dollar, mildly stronger from its close of 83.47 in the previous session. The local unit was little changed month-on-month.
Earlier in the day, the rupee had declined to a low of 83.5250, just shy of its lifetime low of 83.5750, but eventually pared its losses.
Dollar sales by local IT companies in the latter half of the session also aided the rupee, a foreign exchange salesperson at a private bank said.
The dollar index was at 105.76, while most Asian currencies were rangebound.
The Japanese yen declined 0.4% to 156.95, but was well above its 34-year low hit on Monday. Suspected yen-buying intervention by the country's authorities helped the currency recover.
In the near term, the rupee is likely to hold its range between 82.80 and 83.70, with intervention from the central bank preventing any outsized moves, Apurva Swarup, vice president at Shinhan Bank India, said.
The focus now shifts to the U.S. Federal Reserve's policy decision due on Wednesday.
The central bank is widely expected to keep rates unchanged but investors will peruse Chair Powell's remarks for cues on policymakers' views on the future trajectory of monetary policy.
Investors are currently pricing in only 35 basis points of rate cuts over 2024, compared to 150-175 bps of cuts estimated at the beginning of the year.
"The next key impulse comes from Chair Powell's tone ... A hawkish tint is likely," ING Bank stated in a note.
Indian financial markets are shut on Wednesday for a local holiday.
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