The rupee appreciated by 8 paise to 71.23 against the US dollar in early trade on Tuesday as optimism over the US-China trade deal strengthened investor sentiments.
As per media reports China's Vice-Premier Liu He, who is also the chief negotiator for trade talks with the US, will lead a delegation to Washington this weekend, during which he is expected to sign a phase one deal.
Besides, weakening of the American currency in overseas market supported the rupee, while steady rise in crude oil prices and weak opening in domestic equities weighed on the local unit, forex traders said.
At the interbank foreign exchange the rupee opened at 71.28, then gathered momentum and touched 71.23 against the US dollar, registering a rise of 8 paise over its previous close.
On Monday, rupee had settled for the day at 71.31 against the US dollar.
Domestic bourses opened on a cautious note on Tuesday with benchmark indices Sensex trading 144.83 points lower at 41,413.17 and Nifty down 47.10 points at 12,208.75.
The dollar index, which gauges the greenback's strength against a basket of six currencies, fell by 0.04 per cent to 96.69.
Meanwhile, Foreign institutional investors (FIIs) remained net sellers in the capital market, as they sold shares worth Rs 130.52 crore on Monday, according to provisional exchange data.
Brent crude futures, the global oil benchmark, rose 0.41 per cent to trade at USD 68.44 per barrel.
The 10-year government bond yield was at 6.54 per cent in morning trade.
"RBI has initiated the bond switch transactions recently, with an amount of Rs 10,000 crore each time. This has helped bring down the 10 Year benchmark yield by about 25 bps, but it needs to be seen to what extent this operation would help in holding the long end rates to a lower perch," said Joseph Thomas, Head of Research – Emkay Wealth Management on RBI’s OMO on Monday.