Mumbai: The rupee pared initial gains and settled 21 paise lower at 81.59 (provisional) against the US dollar on Monday, tracking a rebound in the greenback overseas and a muted trend in domestic equities.
Forex traders said risk aversion in international markets and sustained foreign fund outflows weighed on investor sentiments.
At the interbank foreign exchange market, the rupee opened on a positive note at 81.29 against the greenback, but pared the gains and fell to an intra-day low of 81.73.
The domestic currency finally settled at 81.59, down 21 paise over its previous close.
On Friday, it depreciated by 8 paise to close at 81.38 against the US dollar.
The dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.12 per cent higher at 102.32.
Global oil benchmark Brent crude futures fell 0.49 per cent to USD 84.86 per barrel.
According to Anuj Choudhary - Research Analyst at Sharekhan by BNP Paribas, the Indian rupee depreciated on Monday on weak domestic equities and a recovery in US Dollar.
The surge in crude oil prices and FII outflows also weighed on the domestic currency.
The dollar declined on Friday and early today after the University of Michigan survey trimmed 1-year inflation expectations to 4 per cent in January from 4.40 per cent in December. This has raised expectations of a slower pace of rate hike by the US Federal Reserve.
"We expect the rupee to trade with a slight positive bias on overall weakness in Dollar amid hopes of a less hawkish FOMC and improved global risk sentiments. However, sustained FII outflows and elevated crude oil prices may cap sharp upside," Choudhary said.
The 30-share BSE Sensex ended 168.21 points or 0.28 per cent lower at 60,092.97, while the broader NSE Nifty fell 61.75 points or 0.34 per cent to 17,894.85.
Foreign institutional investors (FIIs) were net sellers in the capital market on Friday as they offloaded shares worth Rs 2,422.39 crore, according to exchange data.