The rupee depreciated by 5 paise to settle at 75.71 against the US dollar on Wednesday due to concerns over rising tensions between the US and China amid coronavirus pandemic.
Forex traders said the rupee traded in a narrow range as positive domestic equities, rising optimism about a potential coronavirus vaccine and a revival of business activities were offset by a flare-up in the US-China tensions.
Moreover, strengthening of the American currency overseas also weighed on the domestic unit.
At the interbank forex market, the rupee opened strong at 75.72 and gained marginal ground to finally end at 75.71, down 5 paise over its last close.
It had settled at 75.66 against the US dollar on Tuesday.
During the session, the local unit witnessed an intra-day high of 75.57 and a low of 75.74.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, rose by 0.17 per cent to 99.08.
"Rupee is trading in a very tight range, and not breaking the psychological level of 76. There is some optimism in the forex market over coronavirus vaccine and foreign inflows pertaining to Bharti Airtel Telecom stake sale, Kotak Mahindra Bank QIP or Reliance Jio but it its getting offset by the escalating US-China trade tensions.
"US President Donald Trump has already said that he is preparing against China over his efforts to impose national security on Hong Kong. The global growth is already in doldrums due to COVID-19, worsening relations between these two nations will further hobble growth," said Rahul Gupta, Head of Research- Currency, Emkay Global Financial Services.
Positive domestic equities and improving risk appetite supported the local unit, traders said.
"A shift in sentiments is quite visible in the markets which is likely to bode well for the Indian rupee in near term. Risk appetite has returned to the markets and there is lot of optimism as businesses reopen across major economies," said Sugandha Sachdeva, VP-Metals, Energy & Currency Research, Religare Broking.
China on Friday introduced the draft of a controversial national security law in Hong Kong in its parliament to tighten Beijing's control over Hong Kong.
The US, over the last few days, has expressed concerns over the new Chinese law on Hong Kong and has given indication of taking steps against it.
"He (US President Donald Trump) is displeased with China's efforts and that it's hard to see how Hong Kong can remain a financial hub if China takes over," White House Press Secretary Kayleigh McEnany told reporters at a news conference on Tuesday.
Commenting on the rupee, Jateen Trivedi, Senior Research Analyst at LKP Securities said, "Although foreign fund inflows, particularly from Bharti Airtel parent’s stake sale, have put some pressure on the USDINR pair, but mounting tensions between the US and China, and an uncertain global growth outlook, should keep the pair well bid. We remain bullish on the pair, till it falls below the crucial level of 75.50."
Meanwhile, in India, the death toll due to COVID-19 rose to 4,337 and the number of cases climbed to over 1.51 lakh, according to the Health Ministry.
The number of cases around the world linked to the disease has crossed over 56.06 lakh and the death toll has topped 3.50 lakh.
On the domestic equity market front, the 30-share index settled 995.92 points or 3.25 per cent higher at 31,605.22. Similarly, the broader NSE Nifty surged 285.90 points or 3.17 per cent to 9,314.95.
Foreign institutional investors were net buyers in the capital market, as they bought equity shares worth Rs 4,716.13 crore on Tuesday, according to provisional exchange data.
Brent crude futures fell 1.30 per cent to USD 35.70 per barrel.
The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 75.6404 and for rupee/euro at 82.6417. The reference rate for rupee/British pound was fixed at 92.6020 and for rupee/100 Japanese yen at 70.11.