The rupee weakened on Tuesday as dollar demand from oil firms and gold importers looking to meet month-end import commitments weighed, while losses in the domestic shares added to the downward pressure.
Traders said a drop in global crude oil prices also added to dollar demand from oil importers, who were looking to cover their needs at current levels.
Foreign exchange markets are closed on Wednesday and Friday this week for local holidays, pushing forward these dollar purchases.
Despite some consolidation seen this month, some analysts still see support for the rupee, which was boosted in September by the government's fiscal and economic measures and the rally in share markets.
"I continue to be bullish on the rupee in the short to medium term. There is a higher probability of the rupee seeing 51.50 in the next three months as compared to 55.00," said Samir Lodha, managing director at QuantArt Market Solutions.
"Rupee should gain from any capital inflows that would come in linked to the reforms announced so far, as also on the back of any more steps taken. The improvement in the US economy is also improving risk appetite, only risk to this view is a fall of the ruling government".
The partially convertible rupee closed at 53.74/75 per dollar versus 53.47/48 on Monday.
Oil firms are the biggest buyers of dollars in the domestic currency market, and their demand tends to peak at the end of each month, when they are required to make their payments.
Their dollar demand was also driven as Brent crude eased towards $109 a barrel as investors brushed off Iran's threat to halt exports if the West tightens sanctions and focused on a fragile world economy.
Traders said losses in the domestic stock markets also hurt as foreign fund flows into and out of the market are a key element in deciding the rupee's fortunes.
Shares fell as ITC continued to drop on profit booking after hitting a record high last week, while Hero MotoCorp fell on concerns ahead of its July-September earnings results later in the day.
In the non-deliverable forwards market, the one-month contract was at around 53.98 while the three-month was at 54.49.
In the currency futures market, the most-traded near-month dollar/rupee contract on the National Stock Exchange, the MCX-SX and the United Stock Exchange, all closed at around 53.78 with a total traded volume on the three exchanges at $5.33 billion.