MUMBAI: The rupee declined 4 paise to 96.39 against the US dollar in early trade on Tuesday over a rise in crude oil prices and sustained FII outflows.
However, positive sentiments in the domestic equity markets and a weaker dollar index cushioned the local unit against further decline, forex traders said.
At the interbank foreign exchange, the rupee opened at 96.29 but fell to 96.39, down 4 paise from its previous close.
The rupee depreciated 10 paise to close at 96.35 against the US dollar on Monday.
"The Reserve Bank has been protecting the rupee from its fall at 96.33 but the demand of dollar from FPIs and oil companies has not come down despite oil falling to USD 100.63 per barrel and dollar index to 102.12," Anil Kumar Bhansali, Head of Treasury and Executive Director, Finrex Treasury Advisors LLP, said.
The Reserve Bank's Monetary Policy Committee began its three-day meeting on Monday and is likely to raise rates by 25 basis points, aligning with the central banks' hawkish stance amid escalating conflict in West Asia that poses risks for domestic inflation.
The last repo rate hike was in February 2023, when the RBI raised the rate by 0.25 per cent to 6.50 per cent. It kept the rate unchanged through 2023-24 before beginning its rate-cut cycle in 2025. Currently, the RBI's policy repo rate stands at 5.25 per cent.
Meanwhile, the dollar index, which gauges the strength of the greenback against a basket of six currencies, was trading at 102.12, lower by 0.04 per cent.
Brent crude, the global oil benchmark, was trading higher by 0.23 per cent at USD 100.6 per barrel in futures trade.
On the domestic equity market front, Sensex advanced 120.22 points to 72,535.41 in early trade, while Nifty also rose 47.15 points to 22,603.10.
Foreign Institutional Investors (FIIs) offloaded equities worth Rs 4,699.14 crore on a net basis on Monday, according to exchange data.