The rupee slipped to a lifetime low of 83.5350 to the U.S. dollar near the open before inching up to 83.4875 at 10:24 a.m. IST. The local currency had closed at 83.4500 on Monday.
The Reserve Bank of India likely intervened via state-run banks to curb the rupee's decline, traders said.
"The RBI has yet again managed to snuff out any possibility of a large move that would have made a lot of people nervous," Kunal Kurani, associate vice president at Mecklai Financial, said.
The rupee would have declined "way more" if the RBI had not intervened, he said.
The dollar index was at its highest in nearly six months, while Asian currencies dropped, with the Korean won and the Indonesian rupiah leading the way. Asian equities declined up to 2.3%.
Asian currencies and equities were pegged back by the rise in U.S. Treasury yields. U.S. retail sales rose more than expected in March, indicating that the economy remained healthy and reinforcing expectations that a Fed rate cut this quarter was unlikely.
The 10-year U.S. yield on Monday climbed to the highest since mid-November. The dollar rose against its major peers.
The U.S. retail sales data fuelled expectations of "no landing for the economy and rates staying higher for longer", ANZ Bank said in a note.
Concerns that Israel could retaliate to Iran's attack over the weekend further sapped the appetite for the rupee and other Asian currencies.
Israel's Prime Minister Benjamin Netanyahu summoned his war cabinet for the second time in less than 24 hours on Monday to weigh a response to Iran's attack.
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