The rupee pared initial gains and settled for the day lower by 14 paise to 86.59 (provisional) against US dollar on Tuesday, tracking heavy sell-off in the domestic equity market and a recovery in the US dollar index.
Forex traders said the dollar weakened from its 109 levels but clawed back to 108.66 as Donald Trump declared tariffs against Canada and Mexico in the near future but stopped short of declaring any tariffs against China.
Rupee is expected to see high volatility ahead of key events in the global and domestic economic landscape, they added.
At the interbank foreign exchange, the rupee opened on a positive note at 86.28 against the greenback. During the day, the local unit touched an intraday high of 86.28 and a low of 86.59.
It finally closed at 86.59 (provisional), registering a fall of 14 paise over its previous close of 86.45 against the US dollar.
According to Anuj Choudhary - Research Analyst at Mirae Asset Sharekhan, the Indian rupee opened higher on a weak tone in the US dollar and overnight decline in crude oil prices.
However, the domestic currency lost initial gains as the domestic markets tanked. A recovery in the US dollar index also pressurised the rupee. The US dollar recovered after US President Donald Trump threatened Canada and Mexico with 25 per cent tariffs by February 1.
"We expect the rupee to remain weak on underlying strength in the US dollar and weak domestic markets. Importer demand for dollars may further pressurise the rupee," Choudhary said.
However, any further decline in crude oil prices may support the rupee at lower levels. Markets may see some volatility amid announcements by the US government, Choudhary added.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading down 0.62 per cent to 108.66.
Brent crude, the global oil benchmark, fell 0.97 per cent to USD 79.37 per barrel in futures trade.
On the domestic equity market front both the benchmark indices Sensex and Nifty witnessed a highly volatile trade.
