The rupee weakened in early trade on Tuesday as the dollar strengthened overnight after data showed services activity in the US picked up unexpectedly, offsetting the optimism surrounding China's easing of its zero-COVID policy.
Bloomberg showed the rupee was last changing hands at 81.9625 per dollar in early trade, compared to its previous close of 81.7975 on Monday.
The USDINR pair, which was bought by outflows yesterday, is expected to trade weaker, and the RBI will be watched at this level as the central bank had been protecting the rupee for many days before it fell to 81.00 levels on Friday," said Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors.
After Monday's disappointment, the question now is whether the rupee can at least defend the 82 levels, a spot trader at a foreign bank told Reuters.
The trader added that a near-term range of 81-82 for the rupee had been a broad consensus, and price action during the day will decide if that range will be revised.
PTI reported that the domestic currency fell 24 paise to 82.09 against the US dollar in early trade.
"Taking cues from the west, the wave of sell-off extended in the Asian markets as well but hopes that China could announce a further relaxation of Covid curbs as early as tomorrow has kept the sentiments uplifted," said Amit Amit Pabari, Managing Director of CR Forex Advisors.
Indian markets will eye on the Reserve Bank of India's decision on Wednesday, with the central bank expected to hike interest rates by 35 basis points to 6.25 per cent.
Following its greatest surge in two weeks on Monday, aided by the solid US services data, the dollar maintained its strength against major peers in Asian trading on Tuesday.
On the assumption that the Fed would keep raising rates well into next year, albeit more slowly, Treasury yields rose.
"We would argue that the potential for a higher terminal rate remains," Strategists at Goldman Sachs wrote in a research note.
Those expectations come even after Fed Chair Jerome Powell suggested last week that a reduction in the pace of rate increases at this month's policy meeting was likely.
"Our economists expect Fed Funds rates to peak at around 5-5.25 per cent; a stronger US economy might translate into further pressure on risky assets near-term due to upward pressure on rates," they noted.