The 1-month non-deliverable forward indicated that the rupee will open at 83.53-83.55 to the U.S. dollar compared with 83.5525 in the previous session.
On Monday, the rupee reached an intraday high of 83.4350 -the best level in nearly three months - before dollar buying by interbank and corporates pulled it back.
"It may be a bit early to say with much confidence, but yesterday was the kind of a day that indicated that the downtrend (on dollar/rupee pair) has run its course for now," a currency trader at a bank said.
The rupee on Monday closed at its worst level for the day which "is not a good sign", he said.
Momentum indicators that suggested that rupee was overbought and the significant support the pair has at 83.40 means that downside risks on the dollar/rupee is fairly limited, a treasury official at a bank said.
FED RATE CUTS SUPPORT
The likelihood of one more 50 basis points rate cut by the U.S. central bank at their next meeting in November is expected to be supportive of rupee and other Asian currencies.
Odds of 50 bps rate cut at that meeting have now climbed to 54% from 30% a week back, per the CME FedWatch Tool. The odds were just 10% a month back
Fed officials on Monday backed more rate cuts to protect the labour market, though the pace at which they will slash borrowing cost remained uncertain.
Focus now turns to Fed Chair Jerome Powell's remarks on Thursday.
Powell will likely reiterate the Fed's recalibrated stance that a further loosening of the labour market was unnecessary to bring inflation down to the 2% target, DBS Bank said in a note.
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