The rupee is trading at 58.88/89 versus its previous close of 58.93/94 on the back of some continued dollar inflows but losses in the euro versus the greenback and weaker local shares are expected to limit a sharper downside to the USD/INR pair.
The BSE Sensex trading down 0.32% in early trade and will be watched for cues on foreign fund flows.
The US dollar hovered at a two-month high against a basket of major currencies early in Asia on Thursday, having benefited from a shake out of long positions in sterling and further weakness in the euro.
Budget expectations would drive the markets in near term with traders expecting a range of 58.70 to 59.20 for the day.
Month-end dollar demand from importers is also expected to hurt the rupee.
Asian currencies trading mixed compared to the dollar.