In line with equity markets, the rupee bounced back by 27 paise to close at 66.55 against the US dollar on fresh selling of the American currency by banks and exporters amidst a weak greenback in overseas markets.
The domestic unit resumed marginally higher at 66.77 as against Monday's 2-year low of 66.82 at the Interbank Foreign Exchange (Forex) market. It hovered in a range of 66.7950 and 66.5325 before ending at 66.55, showing a recovery of 27 paise, or 0.40%.
The rupee has dropped 63 paise, or 0.95%, in the previous three trading days. The dollar index was down marginally against a basket of six currencies in late afternoon trade. Besides, the US dollar was lower against the yen and the euro in Asian trade on Tuesday, as early afternoon weakness in the benchmark Nikkei Stock Index soured risk sentiment and induced buying of the Japanese and Eurozone currencies, which are considered safe-haven assets.
The currency market initially was slow to respond to Chinese trade data on Tuesday, which showed much faster pace of decline in imports than expected and a decline in exports for the second straight month. Meanwhile, the benchmark BSE Sensex recovered by 424.06 points, or 1.70%, at 25,317.87.
Veracity Group CEO Pramit Brahmbhatt said, "Exporters were seen selling dollars at higher levels which supported the rupee. The trading range for the Spot USD/INR pair is expected to be within 66.20 to 67.00."
In Tuesday's forward market, premium for dollar declined further on persistent receivings from exporters. The benchmark six-month premium payable in February eased to 203.5-205 paise from 205-207 paise yesterday and far forward August 2016 contracts fell further to 417-418 paise from 420-422 paise previously.
The RBI fixed the reference rate for the dollar at 66.6060 and for the euro at 74.6054. The rupee dropped further against the pound sterling to close at 102.44 as against 102.00 but recovered against the euro to 74.29 from 74.47 previously.
It also bounced back against the Japanese currency to finish at 55.47 per 100 yen from Monday's 55.96.
Meanwhile, oil prices eased on Tuesday in Asian trade as dealers await the US Federal Reserve's decision on whether to raise interest rates following a mixed August jobs report, analysts said.
US benchmark West Texas Intermediate for October delivery fell by 35 cents to $45.70 while Brent crude for October eased by 38 cents to $49.23 in mid-morning trade.