The rupee pared initial gains and settled 8 paise lower at 82.86 (provisional) against the US dollar on Tuesday, weighed by a strong greenback overseas and sustained foreign fund outflows.
At the interbank foreign exchange market, the rupee opened on a positive note at 82.69 against the greenback, but pared the gains and fell to an intra-day low of 82.92.
The domestic currency finally settled at 82.86, down 8 paise over its previous close of 82.78.
The dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 1 per cent higher at 104.55.
Global oil benchmark Brent crude futures rose 0.02 per cent to USD 85.93 per barrel.
According to Dilip Parmar, Research Analyst, HDFC Securities, the Indian rupee continued its downward drift as importers rushed for dollar buying, while the inflows remained muted as traders awaited Wednesday's Federal Open Market Committee (FOMC) meeting minutes.
Spot USD-INR has been consolidating in the narrow range of 82.40 to 82.95.
"Looking at the greenback price action against the major currencies, the chance of an upward breakout is higher in the pair. Once the breakout confirms above 83, the short-covering rally will be imminent and levels of 83.50 and 83.70 can be seen in a short span of time," Parmar added.
The 30-share BSE Sensex ended 126.41 points or 0.21 per cent higher at 61,294.20, while the broader NSE Nifty climbed 35.10 points or 0.19 per cent to 18,232.55.
Foreign Institutional Investors (FIIs) remained net sellers in the capital markets on Monday as they offloaded shares worth Rs 212.57 crore, according to exchange data.