Extending losses for the second straight day, the rupee dropped further by 5 paise to settle at 66.86 per dollar on Tuesday on persistent dollar demand from importers amid fall in equity market.
Sustained foreign capital outflows also affected the market sentiment. Foreign investors withdrew $156.58 millions from the equity market on Monday.
Fall in crude oil prices in global market strengthening the dollar overseas also weighed on the rupee sentiment, dealers said.
The crude oil prices tumbled to 12-year low levels of $31 a barrel today due to a global supply glut, a strong dollar and tepid demand.
The rupee resumed lower at 66.83 per dollar as against Monday's closing level of 66.81 at the Interbank Foreign Exchange market and dropped further to 66.9750 per dollar.
However, it recovered afterwards to 66.72 per dollar before concluding at 66.86 per dollar, showing a loss of five paise or 0.07 per cent.
The domestic currency hovered in a range of 66.72 per dollar and 66.9750 per dollar during the day.
Meanwhile, the dollar index was up by 0.12 per cent against a basket of 6 currencies in the later afternoon trade.
"Taking cues from domestic equity market USD closed stronger by 5 paise. USD traded in a narrow range maintaining 67 as cap.
"Trading range for the spot USD/INR pair is expected to be within 66.5 to 67 range and will take cue from domestic equity market," Veracity Group CEO Pramit Brahmbhatt said.