The rupee opened slightly firmer at 89.93 and held above 90 early on, supported by dollar sales from state-run banks, traders said.
It later slid through the 90 level and closed 0.3% weaker at 90.1950, its lowest close in two weeks.
Heavy dollar demand from oil importers weighed on the currency through the session, while a U.S. holiday on Thursday thinned liquidity and amplified moves, traders said.
For the year-crossing week, the rupee fell 0.4% in thin trade, after dropping 0.65% last week.
“Markets will watch closely for signals on how tolerant the RBI remains of the currency moves, scale and timing of its interventions, and the use of instruments such as FX swaps and liquidity operations,” said Kunal Sodhani, head of treasury at Shinhan Bank India.
He further said the currency’s path will largely be determined by external forces and the RBI’s response.Meanwhile, the perception that the Reserve Bank of India wants to prevent a break of 90, a level that came into focus in the final sessions of the year following sharp gains from record low levels, further strengthened.
Market participants have continued to test the level, indicating that underlying demand for dollars remains robust and risk of a wider move past 90 remains on the table, despite RBI presence.
Most Asian currencies were on the back foot on the day, offering little support to the rupee.
