The rupee reversed its three-day rally and depreciated by 13 paise to settle at 82.69 (provisional) against the U.S. dollar on Friday (August 25), tracking strong American currency and negative equity markets.
Rising crude oil prices also weighed on the domestic unit even as foreign fund inflows restricted losses, forex traders said.
At the interbank foreign exchange, the domestic unit opened weak at 82.60 and touched the intra-day low of 82.72 against the greenback. It finally settled at 82.69 (provisional) against the dollar, registering a fall of 13 paise over its previous close.
On Thursday, the rupee appreciated by 16 paise to settle at 82.56 against the U.S. dollar, making it the third straight day of gain.
"Indian rupee depreciated on Friday on strong dollar and weak domestic markets. However, FII inflows cushioned the downside. The dollar rose on mixed to positive economic data from the U.S.," Anuj Choudhary, Research Analyst at Sharekhan by BNP Paribas, said.
The latest U.S. government data showed a dip in weekly unemployment claims and an increase in core durable goods orders in July over the preceding month, raising expectations of a further rate hike by the U.S. Federal Reserve.
Investors are awaiting cues on the U.S. Fed's monetary policy from Chairman Jerome Powell's speech at the Jackson Hole Symposium on Friday.
"We expect the rupee to trade with a slight negative bias on risk aversion in global markets and a strong U.S. dollar. However, weakness in crude oil prices and inflows by foreign investors may support the rupee at lower levels," Mr. Chaudhary said.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.18% to 104.17.
Global oil benchmark Brent crude futures climbed 1.39% to $84.52 per barrel.
On the domestic equity market front, the BSE Sensex closed 365.83 points or 0.56% lower at 64,886.51. The broader NSE Nifty declined 120.90 points or 0.62% to 19,265.80.
Foreign institutional investors (FIIs) were net buyers in equities on Thursday as they purchased shares worth ₹1,524.87 crore, according to exchange data.
