The rupee declined 4 paise to 83.95 against the US dollar in early trade on Tuesday due to a stronger greenback in global markets and weak domestic manufacturing data.
A decline in the domestic equity market also contributed to the drop in the local unit, forex traders said.
At the interbank foreign exchange market, the rupee opened at 83.94, lower by 3 paise from its previous close before dropping further to 83.95. The unit had settled at 83.91 against the US dollar on Monday.
"The rupee again extended its slide against the US dollar above 83.90 levels, slashing all previous week's gains. With August proving to be a challenging month, the rupee ranked as the second-worst-performing currency in Asia," CR Forex Advisors Managing Director Amit Pabari said.
The HSBC India Manufacturing PMI declining slightly to 57.5 in August and India's economic growth falling to a 15-month low of 6.7 per cent for the June quarter contributed to the drop in the local unit, he said.
Meanwhile, in the domestic equity markets, Sensex declined 78.28 points to 82,481.56 in early trade, while Nifty was down 23.6 points to 25,255.10.
The dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.08 per cent to 101.73 points.
Brent crude, the international benchmark, declined 0.31 per cent to USD 77.28 per barrel in futures trade.
Foreign Institutional Investors (FIIs) were net buyers in the capital markets on Monday, as they purchased shares worth Rs 1,735.46 crore, according to exchange data.
"The rupee now finds itself in a delicate balance, caught in a tug-of-war between positive and negative factors. It has been trading within a tight range of 83.70 to 84.05, slipping by around 0.17 per cent in August despite a notable correction in the dollar index," Pabari said.
"The Reserve Bank of India's active intervention has kept the rupee within this narrow band, and as long as the central bank maintains its grip, the rupee is likely to remain stable," he added.
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