The rupee erased its early gains to settle down by 4 paise at a three-week low of 71.31 against the US currency on Thursday, marking its fifth straight day of losses amid heavy selling in domestic equities and steady rise in crude oil prices.
Month-end dollar demand and weakness in domestic equities weighed on the domestic currency, forex traders said.
At the interbank foreign exchange market, the rupee had opened higher at 71.26 against the US dollar. During the day, the domestic unit fluctuated between a high of 71.22 and a low of 71.35.
The rupee finally settled at 71.31 against the US dollar, lower by 4 paise over its previous close of 71.27 on Tuesday. The rupee has weakened by around half a percentage point or 34 paise since Thursday last due to strengthening crude oil prices on easing trade worries. Forex outflows and a stronger dollar have also hit the domestic unit.
Forex market was closed on Wednesday on account of the Christmas holiday.
"Volatility in the next couple of sessions could remain low as major global markets would remain shut on account of Christmas holidays. No important economic data releases could keep the momentum low for major crosses as well," said Gaurang Somaiyaa, Forex & Bullion Analyst, Motilal Oswal Financial Services.
A steady rise in crude oil prices, heavy selling in domestic equities, foreign fund outflows and strengthening of the American currency vis-a-vis other currencies overseas also weighed on the local unit, analysts said.
"Rupee is weak as higher crude prices are keeping the worried importers on buy-side of the USDINR pair," said Jateen Trivedi, Senior Research Analyst (Commodity & Currency) at LKP Securities.
Brent futures rose 0.42 per cent to USD 67.48 per barrel.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, rose by 0.07 per cent to 97.70.
"Indian rupee depreciates on month-end dollar demand from importers. Rupee fell for the fifth day in a trot amid higher crude and stronger dollar against Asian currencies. Globally, the trading volumes remained light on back of year-end holidays," said V K Sharma, Head - PCG & Capital Market Strategy, HDFC securities.
Sharma further said that the weakness in the rupee may continue in coming days on year-end adjustment by foreign institutions.
On the domestic market front, the 30-share BSE Sensex ended 297.50 points, or 0.72 per cent, lower at 41,163.76. The broader NSE Nifty closed 88 points, or 0.72 per cent, down at 12,126.55.
Foreign institutional investors (FIIs) remained net sellers in equities, as they sold shares worth Rs 504 crore on a net basis on Thursday, according to provisional exchange data.
The 10-year government bond yield was at 6.58 per cent.
The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 71.1959 and for rupee/euro at 78.9487. The reference rate for rupee/British pound was fixed at 92.1522 and for rupee/100 Japanese yen at 65.07.