The to-and-fro between the US and India comprising tariff hike threats and Russian crude oil-buying accusations impacted investor mood as risk-off sentiment deepened.
The rupee depreciated 16 paise to close at 87.82 (provisional) against the US dollar on Tuesday, with further fall expected by forex traders as the US-India trade deal uncertainty continues to keep markets on edge.
However, the domestic unit pared initial losses on supposed intervention by the Reserve Bank of India (RBI) while overnight decline in crude oil prices also cushioned the downside to an extent.
Also Read: Forex reserves rebound after three-week dip
At the interbank foreign exchange, the domestic unit opened at 87.95 against the greenback, touching an intra-day high of 87.75 against the American currency.
By the end of Tuesday's trading session, it was at 87.82 (provisional), down 16 paise over its previous close.
On Monday, the rupee had depreciated 48 paise to close at 87.66 against the US dollar.
US President Donald Trump has been on a tirade against India for buying massive amounts of Russian oil and selling it for big profits in international markets, thereby “funding the war against Ukraine”.
Last week, the President had threatened India with a 25 per cent export duty on all Indian goods as well as a “penalty” for buying Russian crude and military equipment.
On Monday, he trumped it with a fresh threat of “substantially” increasing the tariffs.
In such an environment, experts are bracing for more downfall in the rupee.
"We expect the rupee to continue to slide as India-US trade deal uncertainty continues to dent domestic market sentiments. Weak tone in the domestic equities and FII outflows may further pressurise the rupee," Anuj Choudhary, Research Analyst, Commodities Research, Mirae Asset Sharekhan, said.
Choudhary added that "the rupee may also remain weak ahead of the RBI's monetary policy. Market expects a rate cut by the central bank. However, overall weakness in the US dollar amid rising odds of a rate cut by the Fed in September may support the rupee at lower levels".
As far as the RBI’s monetary policy decision that comes out on August 6, investors are cautious but not expecting any further repo rate cuts just yet.
The RBI Governor Sanjay Malhotra-headed rate-setting panel on Monday started the three-day deliberations to decide the next bi-monthly monetary policy.
Meanwhile, Brent crude prices fell 0.97 per cent to USD 68.09 per barrel in futures trade, after OPEC+ agreed to hike another large output increase in September, adding to oversupply concerns after US data showed lacklustre fuel demand.
The dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.18 per cent to 98.68.
In the domestic equity market, the 30-share BSE Sensex advanced 308.47 points, or 0.38 per cent, to close at 80,710.25, while the Nifty rose 73.20 points, or 0.30 per cent, to settle at 24,649.55.
Foreign institutional investors (FIIs) offloaded equities worth ₹2,566.51 crore on a net basis on Monday, according to exchange data.
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