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The rupee pared early gains and closed 21 paise lower at 81.59 (provisional) against the US dollar on Monday, tracking a rebound in the greenback overseas and a muted trend in domestic equities.
Forex traders said risk aversion in international markets and sustained foreign fund outflows weighed on investor sentiment.
At the interbank forex market, the rupee opened on a positive note at 81.29 against the greenback, but pared gains and settled at an intra-day low of 81.73.
The domestic currency finally settled at 81.59, down 21 paise over its previous close.
On Friday, it had closed at 81.38 against the US dollar, down 8 paise.
The dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading up 0.12% at 102.32.
Global oil benchmark Brent crude futures fell 0.49% to $84.86 a barrel.
According to Anuj Chowdhary, research analyst at Sharekhan by BNP Paribas, weak domestic equities and a correction in the US dollar led to a fall in the Indian rupee on Monday.
A rise in crude oil prices and outflows by FIIs also weighed on the domestic currency.
The dollar fell on Friday after a University of Michigan survey lowered 1-year inflation expectations to 4% in January from 4.40% in December. This has raised expectations of a slower pace of rate hikes by the US Federal Reserve.
“We expect Rupee to trade with a slight positive bias on overall weakness in Dollar amid expectation of less aggressive FOMC and improving global risk sentiments. However, there could be continued FII outflows and a sharp rise in crude oil prices,” Mr Choudhary said.
The 30-share BSE Sensex declined 168.21 points, or 0.28%, to close at 60,092.97, while the broader NSE Nifty declined 61.75 points, or 0.34%, to 17,894.85.
Foreign institutional investors (FIIs) were net sellers in the capital market on Friday as they offloaded shares worth Rs 2,422.39 crore, according to exchange data.