India depends on capital inflows to bridge its current account gap, and the high-yielding currency is thus sensitive to global risk sentiment, especially given the country runs a wide current account deficit and is seeing slowing growth.
No signs of intervention from the RBI were spotted, unlike on Friday, when the Reserve Bank of India unexpectedly sold dollars.
Monday marked the fourth consecutive losing session for the rupee, as it slowly begins to approach the record low levels of 57.32 hit on June 22.
"The rupee remains hostage to capital flows given the current account and fiscal deficits," said Nizam Idris, head of Asian fixed income and currencies at Macquarie Bank.
He expects the rupee to trade in a wide 54-58 to the dollar range, with an upward bias.
"INR really needs a sustained fall in oil prices and positive global market sentiment to turn the recent trend of weakness."
The partially convertible rupee closed at 55.92/93 as per the SBI closing rate, down from its Friday's close of 55.42/43.
The rupee had fallen to as low as 56.07 during trade, its weakest since June 29.
Still, NDFs are not yet pricing in a resumption to record lows. The one-month offshore non-deliverable forward contracts were quoted at 56.26 while the three-month were at 56.91.
Global risk assets reeled on Monday after inflation data in China signalled waning consumer demand at a time when investors remain concerned about the outlooks for the euro zone and the United States.
The euro was steady after hitting a two-year low against the dollar early on Monday, looking vulnerable ahead of a meeting of euro zone finance ministers that is intended to flesh out details of the agreement reached by leaders in late June.
In the currency futures market, the most traded near-month dollar-rupee contract on the National Stock Exchange, the United Stock Exchange and the MCX-SX all ended at around 56.13. The total volume was at $3.9 billion.
Copyright @Thomson Reuters 2012