The rupee depreciated 4 paise to 86.61 against the US dollar in early trade on Wednesday, due to sustained foreign fund outflows, unabated dollar demand from oil importers and weak risk appetite.
Forex traders said the rupee continued to face pressure as investors are awaiting cues from the US FED meeting outcome. Besides, global risk sentiments were dampened amid tariff threats by the US President Donald Trump, they said.
At the interbank foreign exchange, the rupee opened at 86.58 then fell further to 86.61 against the American currency, registering a decline of 4 paise over its previous close.
On Tuesday, the rupee depreciated 26 paise to close at 86.57 against the US dollar.
Forex traders said broad dollar demand, foreign fund outflows pressurised the rupee. However, a decline in crude oil prices cushioned the downside.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was at 107.83, lower by 0.03 per cent.
Brent crude, the global oil benchmark, was quoted 0.15 per cent lower at USD 77.37 per barrel in futures trade.
In the domestic equity market, the 30-share BSE Sensex was trading 216.69 points or 0.29 per cent up at 76,118.10 in morning trade, while Nifty was higher by 68.70 points or 0.3 per cent to 23,025.95 .
Foreign Institutional Investors (FIIs) offloaded equities worth Rs 4,920.69 crore in the capital markets on net basis on Tuesday, according to exchange data.
Traders further said the Reserve Bank of India's announcement of the open market operations (OMO) may also support the rupee at lower levels.
As part of its over Rs 1.5 lakh crore liquidity injection into the banking system, the Reserve Bank on Tuesday said it will conduct a USD/INR buy-sell swap auction of USD 5 billion (about Rs 43,000 crore) on January 31.
The RBI had announced OMO purchase auctions of government bonds aggregating Rs 60,000 crore, Variable Rate Repo (VRR) auction of Rs 50,000 crore and foreign exchange swap of USD 5 billion.
The decision on liquidity injections comes days ahead of RBI's next bi-monthly monetary policy in which the Monetary Policy Committee may opt for a reduction in the benchmark lending rate.
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