The rupee closed at 83.4725 against the U.S. dollar, lower by 0.1% compared to its close of 83.37 in the previous session.
During the session, the currency was pushed lower by dollar bids from local corporates and foreign banks, likely on behalf of custodial clients, traders said.
Foreign investors have sold Indian stocks worth over USD 2 billion over the last two trading sessions following a weaker-than-expected election outcome for Indian Prime Minister Narendra Modi's party and alliance.
Benchmark Indian equity indices, the BSE Sensex and Nifty 50, ended the session higher by about 0.9% each.
The dollar index was at 104.2 while most Asian currencies rose, after U.S. economic data raised investor hopes that the Federal Reserve would cut rates twice over 2024.
With Modi's alliance set to form the government, some of the election outcome jitters should fade but the rupee seems "stuck between" equity outflows and the central bank's interventions for now, a foreign exchange trader at a private bank said.
Investors will keep an eye on the European Central Bank's policy decision later in the day, in which the central bank is expected to cut interest rates from record highs.
The RBI's monetary policy decision, alongside the U.S. non-farm payrolls report, is due on Friday. The Indian central bank is widely expected to keep interest rates steady and retain its tighter monetary stance.
The rupee is likely to stay in its prevailing 83-83.50 band and it "wouldn't be a surprise if a similar range continues over the next 3-4 months as well", said Sajal Gupta, executive director and head of forex and commodities at Nuvama Institutional.
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