The Indian rupee on Tuesday dropped 7 paise to close at 71.01 against the US dollar as foreign fund outflows and subdued equities weakened forex market sentiment.
However, easing crude oil prices and weaker greenback against rival currencies restricted the rupee fall to some extent.
Foreign investors pulled out Rs 828.49 crore from Indian equities on Tuesday, according to exchange data.
At the interbank foreign exchange market, the local unit opened on a strong note at 70.72, then lost ground and fell to an intra-day low of 71.05 against the American currency.
The domestic unit finally settled for the day at 71.01 against the US dollar, down 7 paise over its previous close.On Monday, the local unit settled unchanged at 70.94 against the US dollar.
Fitch Solutions Macro Research (a unit of Fitch Group) in its outlook for the Indian rupee noted that the Indian rupee is expected to remain on a "broad depreciatory path against the US dollar".
"Over the short term, a narrowing of real interest differentials with the US and a worsening terms of trade would put pressure on the rupee, while the central bank's focus on growth support would likely spur foreign exchange market interventions to limit rupee strength," the report noted.
Brent futures, the global oil benchmark, eased 1.34 per cent to USD 63.90 per barrel.
The dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.01 per cent to 98.59.
Benchmark stock gauges Sensex and Nifty ended on a flat note on Tuesday as investors scrambled to book profits after a stellar two-day rally.
After gyrating 393 points during the day, the 30-share index ended 7.11 points or 0.02 per cent higher, at 39,097.14. While, the broader NSE Nifty settled with a marginal loss of 12 points, or 0.10 per cent, at 11,588.20.
The 10-year government bond yield was at 6.78 per cent.The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 70.9212 and for rupee/euro at 78.1835. The reference rate for rupee/British pound was fixed at 88.4799 and for rupee/100 Japanese yen at 65.83.