The rupee appreciated 13 paise to 74.26 against the US dollar in opening trade on Monday, tracking a strong rally in the domestic equities and weak American currency overseas.
However, rising crude prices in the international market and foreign fund outflows capped the rupee gains, forex traders said.
At the interbank foreign exchange, the rupee opened strong at 74.27 against the dollar, then lost some ground to quote 74.26, registering a rise of 13 paise over its previous close.
On Friday, the rupee had settled at 74.39 against the US dollar.
On the domestic equity market front, BSE Sensex was trading 245.07 points or 0.44 per cent higher at 55,574.39, while the broader NSE Nifty rose 52.60 points or 0.32 per cent to 16,503.10.
The US dollar was struggling against its major rivals in the overseas market.
The dollar index, which gauges the greenback's strength against a basket of six currencies, slipped 0.20 per cent to 93.30.
Global oil benchmark Brent crude futures surged 1.93 per cent to USD 66.44 per barrel.
Meanwhile, foreign institutional investors were net sellers in the capital market on Friday as they offloaded shares worth Rs 2,287.03 crore, as per exchange data.