The rupee pared its initial gains to settle marginally higher at 74.24 against the US dollar on Tuesday amid continued meltdown in equity markets and sustained foreign fund outflows.
Forex traders said the Indian rupee which started the day on a positive note, witnessed heavy volatility amid fears that the rate cut by the Reserve Bank would not be sufficient to boost market sentiments.
At the interbank foreign exchange market, the local currency opened at 74.16. During the day it saw a high of 73.86 and a low of 74.32 against the American currency.
The domestic unit finally settled at 74.24 against the greenback, up by just 1 paise over its previous closing price. The local unit had settled at 74.25 against the greenback on Monday.
"Rupee witnesses further weakening after continued meltdown in the equity markets and sustained foreign fund outflows," Gaurang Somaiyaa, Forex & Bullion Analyst, Motilal Oswal Financial Services.
Somaiyaa further noted that "markets seemed disappointed from the RBI meet on Monday which failed to discuss any interest rate decision although it put brief light on the swap operations it announced in the recent past. USDINR is likely to trade in the range of 74.20 and 74.70".
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Traders said the rupee recovered during the day as investor sentiments improved after the Reserve Bank on Monday hinted at a rate cut at the next Monetary Policy Committee (MPC) meet on April 3 and announced more liquidity enhancing measures.
The RBI announced another round of USD 2 billion dollar-rupee swap on March 23 and up to Rs 1 lakh crore of long-term repo operations as and when required.
Meanwhile, investor sentiment remained fragile amid concerns over the impact of coronavirus outbreak on the global economy, forex traders said.
The number of deaths around the world linked to the new coronavirus has topped 7,000.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, rose 1.31 per cent to 99.35.
The 10-year government bond yield was at 6.26 per cent.
Global crude oil benchmark Brent dropped 0.97 per cent to USD 29.76 per barrel amid concerns over global growth.
On the domestic equity market front, the 30-share BSE Sensex traded modestly higher for a majority of the session, but succumbed to a sudden sell-off in the last hour of trade. It finally closed 810.98 points or 2.58 per cent lower at 30,579.09, after gyrating 1,653 points during the day.
Likewise, the broader NSE Nifty slumped 230.35 points or 2.50 per cent to finish at 8,967.05. Nifty has ended below the key 9,000-level after March 2017.
Foreign institutional investors sold equities worth Rs 3,809.93 crore on a net basis on Monday, according to provisional exchange data.
The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 74.2723 and for rupee/euro at 82.7027. The reference rate for rupee/British pound was fixed at 91.6827 and for rupee/100 Japanese yen at 69.82.