Weak trends in local stocks with Sensex dropping by 129 points also weighed on rupee but some capital inflows limited its decline to some extent, forex dealers said.
At the Interbank Foreign Exchange (Forex) market, the domestic unit commenced sharply lower at 55.72 a dollar from yesterday's close of 55.39. Soon after it touched an intra-day low of 55.73 as worries over monsoon aggravated.
Later, rupee managed to bounce back to a high of 55.25 on dollar selling by exporters amid a temporary dollar weakness in overseas markets on reports that today's release of minutes from US Federal Reserve's June meeting will show the central bank was inclined towards more stimulus measures.
Monetary stimulus measures are generally considered bad for a country's currency.
However, substantial dollar buying in the last few minutes of trade pulled rupee down to close at 55.63, a fall of 0.43 per cent. The rupee had rallied against the dollar yesterday, snapping a four-session losing streak.
Traders said there were no signs of RBI intervention.
FIIs bought (net) stocks worth Rs 84.42 crore today.
Dealers also said some Japanese banks sold around USD300 million, pulling down the yen-rupee pair, which helped the rupee gain in the initial trade.
"The intra-day appreciation in rupee was mainly on account of dollar selling carried out by some corporate in the local market. The rupee is seen trading quite range-bound on account of mixed news coming from local and international markets," said Abhishek Goenka, Founder & CEO, India Forex Advisors.
Experts also said the rupee will closely track India's IIP figures for the month of May that will be released tomorrow. (MORE)
