In fairly active trade at the Interbank Foreign Exchange (Forex) market, the local unit opened lower at 42.20/22 a dollar from yesterday's close of 42.10/12.
It dropped further to a low of 42.67 a dollar due to heavy dollar buying by oil refiners as the global crude oil prices remained near $126 a barrel after striking a new peak of $126.98 a barrel in intra-day trade at New York yesterday.
Sustained capital outflows also partly affected the rupee sentiment. Foreign institutional investors reportedly pulled out over $220 million in three days since May 8.
However, dollar selling at higher levels helped the rupee to recover some lost ground and end at 42.44/45, still 0.80 per cent lower from overnight close.
The rupee had lost nearly 86 paise or 2.07 per cent in last three straight sessions. In New York, dollar was buoyed against euro and yen on Tuesday due to a positive report on US April retail sales, which offered signs of hope for the economy.