Mumbai: Tracking the domestic stock market movement, the rupee on Tuesday breached the key 56-level against the dollar in early trade but recovered some losses to close at 55.80, still down 6 paise, after RBI intervention.
After closing at 55.74 on Monday, the rupee opened lower at the Interbank Foreign Exchange (Forex) Market on persistent dollar demand amid a stronger trend overseas.
The rupee touched a nearly one-week low of 56.08 intra-day as dollar demand from corporate rose. With rupee breaching the 56-level, forex dealers said RBI sold some dollars helping rupee recoup some losses as the currency settled at 55.80.
The rupee has in the last three straight sessions lost a whopping 86 paise on heightened local worries.
"Fundamentally, rupee remained weak. Today, we saw some kind of intervention by the RBI after the currency breached Rs 56 level," said a bank official of a public sector bank.
Though IIP numbers were weak, a turnaround in the equity market provided some support to rupee, according to Geojit Comtrade's Chief Currency Strategist Hemal Doshi.
"Going ahead, rupee is showing signs of weakness unless the RBI comes up with some kind of policy measures to support the domestic currency," said another treasury official of a public sector bank.
Meanwhile, the stock market benchmark Sensex after dropping 100 points in early trade, closed 195 points higher at 16,862.80 after weak IIP data fuelled hopes of a rate cut by RBI soon.
The dollar was mixed against its major rivals as selling pressure on euro eased but concerns over Spain's bank bailout and uncertainty over Greece weighed on trading sentiment.
According to Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said, the rise in dollar index initially weighed on rupee along with weaker IIP data.
"The IIP numbers posted a dismal growth of just 0.1 percent which is a bad sign for the economy raising concerns of growth in economy. The rupee then started regaining its lost ground on expectations of stronger administrative action from RBI over a slew of weak economic numbers and the negative environment," Brahmbhatt said.
The expectations of a wider rate cut has been weighing on rupee along with some positivity in global markets which has witnessed the dollar index too easing from its high has been capping gains and putting downward pressure, dealers said.
"On the other hand, the rupee depreciation and the progress of monsoon may make the RBI wary as far as reducing interest rates is concerned," said Dipen Shah, Head of Fundamental Research, Kotak Securities.
The premium for the forward dollar declined further on sustained receivings by exporters.
The benchmark six-month forward dollar premium payable in November down at 142-143-1/2 paise from 145-147 paise and the far-forward contracts maturing in May also ended lower at 263-1/2-265-1/2 paise from 266-268 paise.
The RBI fixed the reference rate for the US dollar at 56.0545 and for euro at 69.9805.
The rupee eased further against the pound sterling to end at 86.67 from Monday's close of 86.64 while recovered against the Japanese yen to settle at 70.13 per 100 yen from 70.20.
It also firmed up to end at 69.78 per euro from 69.93 previously.