Continuing fall for the third day in a row, the rupee today again fell past the psychological level of Rs 56 against the US dollar in early trade on heavy demand for the American currency from importers amid concerns over euro zone worries.
Dealers said besides strong month-end demand from importers, particularly oil refiners, the euro's weakness against the American currency on persistent euro zone worries, kept pressure on the Indian currency.
At the Interbank Foreign Exchange (Forex) market, the domestic unit opened lower at Rs 56 and continued its downward journey to trade at Rs 56.16, down 49 paise against its yesterday's close of Rs 55.67.
That fall was the culmination of seven consecutive daily all-time lows against the dollar, though the local currency had recovered since then to as high as 55.01 on Monday.
"Dollar/Rupee made a definite move-up once the last technical retracement level of 56.05 was breached. However, today's upmove is in line with the euro's fall and I don't expect the RBI to come in at these levels," said a senior trader with a private bank.
Traders cited strong dollar demand from oil importers looking to meet their commitments at the end of the month.
Global risk aversion also weighed as the euro hit a two-year low on Wednesday, hurt by worries about Spain's soaring borrowing costs and expectations that more spending may be needed to support its ailing banks.
India's move to allow foreign retail investors to buy up to $1 billion in local corporate bonds on Tuesday was seen as too mild to significantly bolster capital inflows and support the shaky rupee.
"The INR is unlikely to benefit from news that policy makers almost doubled the number of countries eligible for the QFI program and allowed foreign investors to open INR accounts onshore, as the steps will take time to be implemented," said Dariusz Kowalczyk, senior economist at Credit Agricole.
He was referring to the qualified foreign investor programme under which the government will allow retail investors from overseas to buy corporate bonds.
The RBI had been intervening frequently this month, in both forwards and spot markets, and adopted measures such as forcing exporters to convert half of their foreign currency holdings into rupees.
However, the actions have failed to have much of an impact.
Meanwhile, the BSE benchmark Sensex fell by 113.55 points, or 0.69%, to 16,325.03 in early trade today.