The rupee was trading at 81.48 to the dollar by 0450 GMT, down from 81.0950 in the previous session. The local unit had opened at near 81.40 and reached a low of around 81.56.
The offshore Chinese yuan led Asian currencies lower, slipping 0.6% to 7.0890 to the dollar. The optimism related to the U.S. inflation data may have run its course, at least for now, a spot trader said.
An additional headwind for the rupee is the demand for dollars, both cash and forward, from importers, the trader added.
This demand and, to an extent, profit-taking from speculators, prompted the rupee's quick decline from the 80.50-level it reached on Monday.
That India's trade deficit widened in October did not help either. The trade slump is a warning of incoming growth headwinds, Nomura said in a note.
Meanwhile, the dollar index inched higher to 106.74, recovering from losses suffered in wake of the lower-than-expected U.S. wholesale price print last week.
The dollar received a bit of a lift from reports that a Russian-made rocket fell on NATO member Poland and killed two people. Moscow denied it was responsible and U.S. President Joe Biden said the missile was probably not fired from Russia.
Asian equities saw moderate moves, suggesting that, at least for now, investors consider the Poland incident a major risk.
Rupee forward premiums declined for the third day with the 1-year implied yield falling to 2.21%.
(Reporting by Nimesh Vora; Editing by Savio D'Souza)
By Nimesh Vora
