The rupee gained early on Tuesday as cautious risk sentiment kept the demand for the greenback in check even as investors flocked to the safe-haven dollar due to nervousness over China's Covid flare-ups.
Bloomberg showed the rupee was last trading at 81.7525 per dollar after opening at 81.6963, compared to Monday's close of 81.8475.
PTI reported that the domestic currency rose 7 paise to 81.72 against the US dollar in early trade.
While a spike in Covid cases in Beijing has prompted new restriction measures and weighing on risk assets, early Asia trading sentiment suggested some risk-taking in search of better returns.
"The dollar appeal is coming back into vogue as the concerns around China and the outbreaks from Covid are keeping markets nervous and have put the brakes on the risker currencies," said Amit Pabari, Managing Director of CR Forex Advisors.
But risks remain from rising interest rates showing no signs of cooling and its ripple effect on worldwide economic growth.
Still, Tuesday saw the dollar give up significant overnight gains as investors fled to safe-haven assets in response to China's COVID flare-ups. However, analysts at the National Australia Bank questioned if this demand for the dollar was long-term.
"Evidence US inflation has peaked and can fall significantly in 2023, together with China and Europe developments, convince us a USD depreciation cycle is now in train," they said in a note on Tuesday.