The rupee depreciated 4 paise to 81.66 against the US dollar in early trade on Thursday amid high volatility as rising crude oil prices weighed on the local unit.
At the interbank foreign exchange, the rupee opened on a strong note at 81.52 against the greenback, then pared the gains and fell to 81.66, registering a fall of 4 paise over its previous closing.
In initial trading, the rupee also touched 81.51 against the American currency.
On Tuesday, the rupee appreciated by 20 paise to end at 81.62 against the US dollar.
The forex market was closed on Wednesday on account of Dussehra.
According to Sriram Iyer, Senior Research Analyst at Reliance Securities, the rupee opened stronger tracking a fall in the dollar over the past two sessions. Moreover, Asian and emerging market peers were also stronger this Thursday morning and lent support.
However, stronger crude oil prices, hawkish rhetoric from Fed officials and JP Morgan's decision to hold off the inclusion of Indian bonds into its global index weighed on the local unit, Iyer added.
The dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.35 per cent to 110.81.
Global oil benchmark Brent crude futures surged 0.13 per cent to USD 93.49 per barrel.
On the domestic equity market front, the 30-share BSE Sensex was trading 357.3 points or 0.62 per cent higher at 58,422.77, while the broader NSE Nifty advanced 109.25 points or 0.63 per cent to 17,383.55.
Foreign institutional investors were net buyers in the capital market on Tuesday as they purchased shares worth Rs 1,344.63 crore, as per exchange data.