The rupee weakened for the second day in a row ahead of key domestic retail inflation data and as the dollar regained its strength after markets repriced Federal Reserve action.
PTI reported that the Indian currency fell 9 paise to 79.71 per dollar, and Reuters quoted the rupee at 79.6750, compared to 79.63 in the previous session.
At the interbank foreign exchange, the rupee opened at 79.67 against the US dollar and lost further ground to 79.71, registering a decline of 9 paise over the last close 79.62, according to PTI.
Bloomberg showed the rupee was last changing hands at 79.6438 per dollar, after opening at 79.6662, compared to the previous close of 79.6362.
According to Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors, the rupee depreciated on Thursday, despite a fall in the dollar index and a rise in Asian currencies, amid heavy buying of the US dollar by the government, defence and oil companies.
"The demand may continue on Friday due to holidays in the next week. The range for the day is between 79.40 to 79.80," Mr Bhansali said, adding that oil prices, however, are hovering near $100 per barrel, which is a matter of concern for the rupee and current account deficit (CAD).
Brent crude oil was on track to climb more than 4 per cent for the week, recouping part of last week's 14 per cent tumble, its biggest weekly decline since April 2020. The international benchmark was trading at $99.26 a barrel.
Globally, investors have digested signs of cooling US inflation and hopes the Federal Reserve could slow interest rate hikes, but warning signs have emerged that the battle with rising prices was far from over.
That realisation followed speeches and statements from many Federal Reserve officials warning investors against being sanguine after this week's slight softening in inflation numbers.
The latest was San Francisco Fed President Mary Daly, who said on Thursday that a 50 basis point interest rate hike in September "makes sense" given recent economic data, including inflation. Still, she is open to a bigger rate hike if data warrants it.
The dollar index rose 0.1 per cent to 105.210, with the euro down to $1.0311.
"The market will realise that the FOMC has a lot more work to do, and they will have to increase the fund's rate to as high as 4 per cent at the end of this year," said Carol Kong, a Sydney-based senior associate for currency strategy and international economics at Commonwealth Bank of Australia.
"I do think there is some room for markets to revise their expectation for the Fed funds rate again, so that will help the US dollar to push higher again and erase all the losses following the CPI and PPI figures we got."
Domestically, traders awaited the retail inflation data and eyed whether there will be any follow-through dollar demand.
July retail inflation is expected to have eased to a five-month low to below 7 per cent, based on a Reuters survey of economists.