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The Indian rupee on Tuesday will likely trade in a narrow range near 93 per dollar, supported by the central bank-spurred unwinding of arbitrage positions, while lingering risks of a further flare-up in the Iran war are expected to cap upside.

The rupee is seen opening marginally higher-to-flat versus the U.S. dollar after settling at 93.06 on Monday.

Following three sessions of heightened volatility - including one in which the rupee swung in a 3-rupee range - Monday saw relatively calmer trading, with the currency confined to a roughly 30-paise band.

The price action has led bankers to believe that the rupee may have found a near-term equilibrium around the 93-per-dollar level, after extreme uncertainty over the fallout from the Reserve Bank of India's steps to support the currency.

The rupee has managed a "respectable" recovery from the 95 level with RBI backing, and the market "will now assess how sustainable this is", a currency trader at a private sector bank said.

Position unwinding by banks through the week should "in a way" help the rupee hold near 93, though the Iran war-related risk premiums are likely to limit a further up move, he added.

TRUMP RHETORIC

The rupee remains vulnerable to any escalation in the conflict, which could push oil prices further higher.

U.S. President Donald Trump warned Iran could be "taken out" if it misses his Tuesday night deadline to reach a deal, threatening to rain "hell" on Tehran unless it agrees by 8 p.m. EDT Tuesday (midnight GMT) to reopen the Strait of Hormuz.

"Overall, our continued assessment is that the path towards peace is narrow and unlikely, given the wide gap in expectations among the different parties in this war," MUFG Bank said.

Brent crude contract for June delivery climbed to $111 on Tuesday.