The rupee appreciated by 7 paise to 84.22 against the US dollar in morning trade on Tuesday, buoyed by a sharp rebound in domestic equities and improved investor risk appetite.

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Forex traders attributed the rupee’s strength to the MSCI equity index rebalancing, which spurred Foreign Institutional Investors (FIIs) to purchase Rs 9,947 crore worth of shares on Monday, ending a 40-session streak of net selling.

Additionally, the incumbent government's win in Maharashtra bolstered investor confidence, driving a rally in Indian equity markets.

At the interbank forex market, the rupee opened at 84.27, trading within a narrow range before hitting an early high of 84.22 against the dollar.

"Capital inflows and the Reserve Bank of India's projected GDP rebound to 7.6 per cent for Q3 provide optimism, though volatility remains a concern," said Amit Pabari, MD at CR Forex Advisors.

Globally, US Treasury Secretary nominee Scott Bessent's fiscal agenda kept Treasury yields in check, while the dollar index rose 0.28 per cent to 107.11.

In domestic markets, Sensex climbed 167.76 points to 80,277.61, and Nifty gained 55.80 points to 24,277.70 in early trade. Brent crude was up 0.33 per cent at USD 73.25 per barrel.

(With inputs from agencies)