The rupee on Monday bounced off a five-and-half month high on dollar short-covering as local shares retreated from the day's high and as the euro dropped sharply against the US unit.
The partially convertible rupee closed at 44.57/58 per dollar, after hitting 44.2525 early in the session, its strongest since April 15 and 0.2 per cent weaker than its 44.47/48 close last Friday.
"There was a lot of profit-taking seen today by everyone who had been sitting short dollar. 44.40 was the target, but the momentum took it to 44.25, so profit-taking was obvious," said Ashtosh Raina, head of foreign exchange trading at HDFC Bank.
"Plus equities and the euro helped the dollar too. I think the 44.25-45.25 range should hold for this week," Raina said.
The dollar rose on Monday, recovering earlier losses as traders cut bets the currency will weaken, which have been piling up on speculation the Federal Reserve may further ease U.S. monetary easing.
The index of the dollar against six majors was up 0.2 per cent when the local market session ended.
However, other Asian currencies rose on Monday with the South Korean won hitting a five-month high and the Thai baht touching a 13-year peak, with analysts expecting efforts by foreign exchange authorities to cap currency gains to have a limited impact.
Dealers said there was no central bank intervention in the Indian foreign exchange market.
"Since morning, there was good dollar buying seen. State-run banks were seen buying all throughout. There was some corporate demand at 44.28-35 levels," said Hari Chandramgathan, a forex trader at Federal Bank.
"Euro too came down by 100 pips (basis points) and stocks too were down from their highs, together which contributed to the rupee's fall. I still feel 44.20 should hold on the downside for the dollar with a maximum downside in the short term seen at 43.90. So we will see a range of 44.20-45.20 this week."
Indian shares rose for a third straight session and scaled a fresh 33-month peak on Monday, propelled by robust foreign fund inflows, but closed off highs as weak European equities prompted traders to book profits.
The rupee had posted its best weekly gain in nearly nine months last week. Net foreign equity inflows so far this year reached a record $19.7 billion, above last year's $17.5 billion.
One-month offshore non-deliverable forward contracts were quoted at 44.74, weaker than the onshore spot rate.
In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange, MCX-SX and United Stock Exchange closed at 44.7550, 44.7525 and 44.7575 respectively with the total traded volume on the three exchanges at about $8.3 billion.