The rupee tumbled by 59 paise to nearly 2-year low at Rs 64.78 against the dollar on sustained demand for the American currency from banks and importers on the back of firm greenback overseas following yuan devaluation.
The rupee resumed lower at 64.55 as against Tuesday's closing level of 64.19 at the Interbank Foreign Exchange (Forex) market and dropped further to 64.94 before ending at 2-year low of 64.78.
The domestic currency has tumbled by 104 paise, or 1.63%, in last six trading days. It hovered in a range of 64.55 and 64.94 during the day.
China's surprise decision to devalue the yuan sparked a sell-off in global currencies. The ones that were worst hit were those from economies whose exporters either rely on Chinese companies to buy their products or compete with their exporters for customers.
In the global market, the US dollar hit a fresh two-month high against the Japanese yen on Wednesday while resource-related currencies such as the Australian dollar fell sharply against the US dollar, as Chinese authorities guided the yuan even lower.
China further guided its currency lower on Wednesday after it roiled markets on Tuesday with its decision to push their currency down 1.9% against the US dollar, the largest devaluation in years.
Oil prices extended losses in Asia on Wednesday as Chinese economic worries and over-supply concerns added to downward pressure, analysts said.
Meanwhile, persistent fall in equity markets also affected the sentiments as the benchmark BSE Sensex ended lower by 353.83 points, or 1.27%, to settle at 27,512.26.
However, the US dollar index, which measures greenback's strength against a trade-weighted basket of six major currencies, was down by 0.80%in early trade.
The depreciated rupee will certainly help the exporters but importers will have to face the losses if their positions are not hedged.
The RBI fixed the reference rate for the dollar at 64.82 and for the euro at 71.82.
The rupee declined against the pound sterling to close at 101.00 from 100.01 on Tuesday and moved down further against the euro to 72.20 from 70.84.
The domestic currency fell further against the Japanese unit to 52.14 per 100 yen from 51.39 on Tuesday.