Staging a marginal recovery from its lifetime low, the rupee inched up 1 paisa to close at 78.03 (provisional) against the US dollar on Tuesday amid a weak greenback overseas.
Forex traders said lacklustre domestic markets, elevated crude oil prices and persistent foreign capital outflows weighed on the local unit.
At the interbank forex market, the rupee opened at 78.02 against the greenback and witnessed an intra-day high of 77.90 and a low of 78.07. It finally settled at 78.03, up just 1 paisa over its previous close.
On Monday, the rupee had depreciated by 11 paise to close at a fresh lifetime low of 78.04.
The dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.05 per cent to 105.02.
"The Indian rupee has been on a downward trajectory since the beginning of the year and has depreciated around 5 per cent so far in 2022.
"Along with rising crude oil prices, the prime culprit behind the rupee losing value against the dollar is the sharp rally in the greenback, which has risen by around 10 per cent year-to-date towards a fresh two-decade peak," said Sugandha Sachdeva, Vice President - Commodity and Currency Research, Religare Broking Ltd.
The US dollar is witnessing safe-haven flows as market participants are bracing for rapid-fire rate hikes by the US Fed in its battle against inflation, which has raised the risks of a growth slowdown, Sachdeva said.
This is leading to massive capital outflows from domestic equities. In its battle against scorching inflation, the US Fed might even look at raising the interest rate by around 75 bps at its June meeting which shall be a key headwind for the rupee in the near term.
Global oil benchmark Brent crude futures advanced 0.72 per cent to USD 123.15 per barrel.
On the domestic equity market front, the BSE Sensex ended 153.13 points or 0.29 per cent lower at 52,693.57, while the broader NSE Nifty slipped 42.30 points or 0.27 per cent to 15,732.10.
Foreign institutional investors remained net sellers in the capital market on Monday as they offloaded shares worth Rs 4,164.01 crore, as per exchange data.
Retail inflation eased to 7.04 per cent in May, mainly on account of softening food and fuel prices as the government as well as the RBI stepped in to control spiralling price rise by way of duty cuts and repo rate hike, as per official data released post market hours on Monday.
However, the inflation print stayed above the Reserve Bank's upper tolerance level of 6 per cent for the fifth month in a row. This may prompt the central bank to further hike the repo rate at its next policy meeting in August.
