Higher US Treasury yields, which rose above the 3 per cent mark, boosted the appeal for the dollar, analysts said.
The dollar rose to near 1-month highs against global currencies.
Meanwhile, the local unit opened at 72.61, marginally higher as compared to its Friday's close of 72.65.
It touched a low of 72.95 on strong dollar demand, before recovering to 72.60.
The rupee finally closed at 72.91, down 26 paise.
Foreign institutional investors net sold shares worth Rs 18.41 billion on Monday, provisional data showed.
Meanwhile, the Reserve Bank on Monday announced that it will inject Rs 360 billion liquidity into the system through purchase of government bonds in October to meet the festival season demand for funds.
The auctions to purchase government bonds as part of the Open Market Operations (OMO) will be conducted in the second, third and fourth week of October.
Equity benchmarks snapped their three-day losing streak on Monday as the RBI announced measures to shore up liquidity amid the government pressing for a change of management at the crisis-hit IL&FS.