Mumbai: The rupee opened on a cautious note and fell 28 paise to 71.88 against the US dollar in early trade on Tuesday amid rising demand for the US dollar vis-a-vis other currencies overseas.
Forex traders said the drone attacks on Saudi Arabia's oil facilities have enthused demand for safe heaven assets like the US dollar.
The dollar index, which gauges the greenback's strength against a basket of six currencies, rose by 0.01 per cent to 98.61.
The Indian rupee on Monday had plunged by 68 paise to 71.60 against the US dollar amid concerns over soaring crude prices following drone attacks on Saudi Arabia's oil facilities.
At the Interbank Foreign Exchange, the rupee opened at 71.83 then fell to 71.88 against the US dollar, showing a decline of 28 paise over its previous closing.
The Indian rupee on Monday had closed at 71.60 against the US dollar.
Forex traders said weak opening in domestic equities and unabated foreign fund outflows also weighed on the domestic currency.
Domestic bourses opened on a negative note on Tuesday with benchmark indices Sensex trading 137.87 points down at 36,985.44 and Nifty lower by 38.85 points at 10,964.65.
Foreign institutional investors (FIIs), who were net buyers for the past few sessions, offloaded shares worth Rs 751.26 crore on Monday, according to provisional exchange data.
"The recent attack on Saudi Arabia's largest oil processing plant has sent oil prices shooting up. If production is not resumed soon, such a rise could hurt the global economy as consumer costs will also go up. This will definitely affect India, where the economy is already stressed," said Pushkar Mukewar, Co-Founder and Co-CEO of Drip Capital, a US & India based trade finance firm.
Mukewar further said that the rupee is likely to remain volatile.
Crude oil benchmark, Brent Futures, surged by almost 20 per cent to USD 71.95 per barrel (intra-day) on Monday after twin drone attacks on Saturday wiped out more than half of Saudi Arabia's crude supply.
However, Brent Futures on Tuesday saw some moderation and was trading at USD 68.35 per barrel, down 0.97 per cent over the previous close.
The 10-year government bond yield was at 6.71 per cent in morning trade.
Meanwhile on the global front, a Chinese vice finance minister will visit the United States on Wednesday to lay the groundwork for trade talks next month.
The official Xinhua news agency said vice finance minister Liao Min will lead a delegation visiting the United States on Wednesday to "pave the way" for the higher level talks.