The rupee on Tuesday touched a two-week low of 56.13 but recovered some of the losses to close three paise down at 55.96 against the dollar amid foreign fund outflows and demand of the US currency from importers.
After closing at 55.93 on Monday, the rupee tresumed slightly better at 55.90 at the Interbank Foreign Exchange (Forex) market. However, rupee soon touched a low of 56.13 on erratic movements in stocks and dollar selling by exporters.
Brokers said dollar demand from importers rose after crude oil in Asia fell below the $83 mark.
But, a late rise in domestic equities with Sensex rising 154 points and weak dollar trend in overseas markets helped rupee to rebound to touch 55.88 before concluding at 55.96, a fall of three paise over yesterday's close.
After injecting $393.64 million in straight eight days since June 6 by foreign funds in equities, FIIs sold shares worth around $16.7 million on Tuesday, as per NSE data.
Talking about the rupee, RBI governor D Subbarao on Tuesday said: "Rupee depreciation from March till today is due to both global and domestic factors. Exports not going up while increase in imports and gold import are some factors behind such depreciation."
Since early March, rupee has depreciated over 15% and had touched an all-time low of 56.52 hit against the dollar on May 31.
"The rupee was seen appreciating on account the dollar weakness and high expectation of the rate cut by the central bank. The disappointment is clearly reflected in the markets as rupee as was weakening above 56 levels," said Abhishek Goenka, Founder & CEO, India Forex Advisors.
The dollar index was down by 0.25% against a basket of six rival currencies.
Dealers said the two-day US FOMC meeting will be under a microscope by all the market participants but the overall view is still bearish for the rupee.
Forex experts said the sentiment in favour of the rupee was also tepid due to Fitch downgrading India's credit rating to negative from stable on Monday.
"The rupee extended its weakness due to grim economic outlook on Indian economy and weakening cable currencies due to rising yields and debt costs in Euro zone. The dollar index which had extended gains on risk aversion washed out gains towards the evening over comments from the G20 summit," said Pramit Brahmbhatt, CEO, Alpari Financial Services (India).
"The view is still bearish for rupee. We target it at 56.40 levels in coming days," said Goenka of India Forex Advisors).
The premium for the forward dollar continued to rule firm on sustained paying pressure from banks and corporates.
The benchmark six-month forward dollar premium payable in November settled strong at 153-155 paise from yesterday's close of 146-148 paise. The far-forward contracts maturing in May also hardened to 288-290 paise from 277-279 paise.
The RBI fixed the reference rate for the US dollar at 56.0143 and for euro at 70.5436.
The rupee declined further against the pound sterling to end at 87.75 from overnight close of 87.54 and also remained weak against the Japanese yen to 70.94 per 100 yen against 70.73.
However, the rupee recovered against the euro to 70.62 from 70.66 previously.