The rupee depreciated 17 paise to close at 79.32 (provisional) against the US dollar on Thursday, weighed down by disappointing macroeconomic data and US-China tensions.

At the interbank foreign exchange market, the local currency opened at 79.21 and finally ended at 79.32, down 17 paise over its previous close.

On Wednesday, the rupee had slumped by 62 paise to close at 79.15, marking its worst single-day fall in the current fiscal year.

The dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.27 per cent to 106.22.

Brent crude futures, the global oil benchmark, advanced 0.69 per cent to USD 97.45 per barrel.

According to Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services, volatility for the rupee will remain high following increasing tensions between China and Taiwan.

Moreover, traders may also remain cautious ahead of the RBI's monetary policy decision on Friday.

"We expect the USD-INR (spot) to trade sideways and quote in the range of 79.20 and 79.80 in the short-term," Somaiya added.

On the domestic equity market front, the BSE Sensex ended 51.73 points or 0.09 per cent lower at 58,298.80 points, while the broader NSE Nifty fell 6.15 points or 0.04 per cent to 17,382.00 points.

Foreign institutional investors remained net buyers in the capital market on Wednesday as they purchased shares worth Rs 765.17 crore, as per exchange data.

Forex traders said the rupee is underperforming among Asian currencies amid a record high trade deficit and safe-haven demand for the dollar as investors weigh risks associated with the US-China tensions.

India's exports dipped, though marginally, for the first time in 17 months in July, while the trade deficit tripled to a record USD 31 billion, fuelled by over a 70 per cent rise in crude oil imports.