The rupee declined by 10 paise to close at 68.85 against the US dollar on Tuesday amid heavy selling in domestic equities and rising crude oil prices.
Forex traders said strengthening of the greenback against Asian currencies weighed on the domestic unit.
At the interbank foreign exchange (forex), the domestic currency opened at 68.73 a dollar and gained further to touch a high of 68.67 during the day.
The domestic currency, however, could not hold on to the gains and fell to 68.88. The rupee finally settled at 68.85 a dollar, down 10 paise over its previous close.
Forex traders said the rupee is trading in a narrow range as market participants are awaiting cues from the Federal Open Market Committee (FOMC) meeting on July 31.
Besides, market participants are also looking forward to the US and China trade talks, which can impact rupee movement.
The US and Chinese officials are restarting negotiations in Shanghai in an effort to resolve the year-long trade dispute.
The dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.07 per cent to 98.11.
Heavy selling in domestic equities and foreign fund outflows weighed on the rupee.
Brent crude futures, the global oil benchmark, rose 0.93 per cent to USD 64.30 per barrel.
Meanwhile, the 10-year government bond yield was at 6.39 per cent on Tuesday.
The benchmark index Sensex on Tuesday fell over 289.13 points to close at 37,397.24 due to heavy selling mainly in banking, auto and oil & gas stocks.
The 50-share NSE Nifty too dropped 103.80 points to settle at 11,085.40.
Foreign institutional investors (FIIs) remained net sellers in the capital markets, pulling out Rs 704.42 crore on Tuesday, provisional data showed.