The rupee resumed lower at 56.02 per dollar after yesterday's closing level of 55.65 and dropped further to 56.07, the day's lowest level till mid-session.
Forex dealers said increased selling of the American currency by state-run banks and the Reserve Bank's indication yesterday that it may sell dollars directly to oil companies, helped rupee recover from initial losses.
RBI's intervention and its indicating yesterday that it may sell dollars directly to oil companies have propped the domestic currency, dealers said.
Recovery in the equity markets also had a positive impact on the domestic currency, they said.
After remaining in the red for most of the morning session, the BSE 30-scrip benchmark Sensex recovered by nearly 24 points, or 0.15 per cent to trade at 16,246.16 at 1259 hrs.
It had lost around 75 points in late morning trade from yesterday's close.