At the Interbank Foreign Exchange (Forex) market, the domestic currency opened slightly lower at 54.40 a dollar from its overnight close of 54.38. Later, the rupee moved in line with local equities in a range of 54.18-54.86 before closing down at 54.49.
A firm dollar overseas also weighed on the rupee sentiment with the Euro declining 0.3 per cent to USD 1.257 but inflows restricted rupee's fall to some extent. FIIs pumped in Rs 239 crore in shares, according to provisional data from BSE.
Forex dealers also said possible removal of withholding tax on bond holding by foreign investors supported the currency during today's session.
"In the past few trading sessions, rupee has appreciated much. So, those people who were not part of the rally, are now doing bargain-buying to an extent," said Hemal Doshi, Currency Strategist, Geojit Comtrade.
Reserve Bank Deputy Governor Subir Gokarn in Chennai today said the central bank's liquidity management operations are unrelated to exchange rate movements.
"I do not think you directly co-relate the rupee movement with the OMOs (Open Market Operations). OMOs are being driven by judgements on liquidity conditions," he said.
Experts said the rupee will take cue from the bond auction results for FIIs, which will determine the direction of rupee in the near-term. "By September, rupee should recoup to 53 level," said N S Venkatesh, Head of Treasury, IDBI Bank.
Meanwhile, the Indian stock market benchmark Sensex today ended up by over 37 points or 0.21 pct to its highest closing in nearly 11 weeks. (MORE)
