The rupee rose to 54.59/60 from its close of 54.73/74 on Monday after April wholesale price inflation eased more than expected.
Headline inflation slowed for a third straight month in April to 4.89 per cent, sharply below a median estimate of 5.5 per cent in a Reuters poll and a level seen comfortable for the Reserve Bank of India to persist with monetary easing to revive a flagging economy.
Traders said gains in the share market were also helping the Indian currency but sharp rise above 54.50 levels are unlikely as importers would step in to buy the US currency.
The pair is seen holding in a 54.50 to 54.70 range in rest of the session.
