Forex traders said the US dollar strengthened due to increased demand from oil importers and stronger-than-expected economic data from the US. Moreover, elevated crude oil prices also weighed on the local unit.
At the interbank foreign exchange, the local unit opened at 83.49 and saw an intra-day low of 83.58 and finally settled for the day lower by 6 paise at 83.56 (provisional) against the American currency.
On Monday, the rupee settled lower by 10 paise at 83.50 against the US dollar.
"We expect the rupee to trade with a slight negative bias on the strong US dollar and elevated crude oil prices. However, positive global markets and fresh foreign inflows may support the rupee at lower levels," said Anuj Choudhary – Research Analyst at Sharekhan by BNP Paribas.
Traders may remain cautious ahead of the inflation data from India and the US. Investors are also likely to stay cautious ahead of the Federal Open Market Committee (FOMC) meeting outcome, he said.
Fed is expected to keep its monetary policy unchanged, Choudhary said, adding that the USD-INR spot price is expected to trade in a range of Rs 83.30 to Rs 83.80.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading at 105.25, higher by 0.10 per cent.
"US dollar gained on expectations of further delay in first interest rate cut by the US Federal Reserve on the back of hot non-farm payrolls report last week. Weak pound and euro also supported the dollar. Euro fell on political uncertainty after the French President called for snap elections while pound fell on sharp rise in claimant count change", Choudhary said.
Brent crude futures, the global oil benchmark, declined 0.05 per cent to USD 81.59 per barrel.
On the domestic equity market, the 30-share BSE Sensex slipped 33.49 points, or 0.04 per cent, to close at 76,456.59 points. The broader NSE Nifty settled 5.65 points or 0.02 per cent higher at 23,264.85 points.
Foreign Institutional Investors (FII) were net buyers in the capital markets on Monday, as they purchased shares worth Rs 2,572.38 crore, according to exchange data.