The Indian rupee fell the most in three weeks on Tuesday on bunched-up US dollar demand from importers, with weakness in emerging Asian currencies adding to losses.
Dealers cited thin dollar supply due to the Presidents Day holiday in the United States on Monday. Consistent dollar demand from a large state-run bank, likely to meet the needs of its oil refining clients, also pulled down the rupee, they said.
The rupee has been largely stable even after the U.S. Federal Reserve started tapering its bond buying programme, having cut it to $65 billion a month.
India's Finance Minister Palaniappan Chidambaram said on Monday that the current account deficit would come in at $45 billion in the current fiscal year, sharply lower than $88 billion in the previous year.
Presenting his last budget before facing elections due by May, Chidambaram bettered his previous fiscal deficit target of 4.8 percent for the current fiscal year and said he will achieve 4.1 percent in the next.
India's large fiscal and current account deficits have been a sore point for foreign investors and rating agencies. It has also been a key reason for the rupee's fall to record lows last summer.
Subsequently, policymakers took steps to shore up foreign reserves by raising $34 billion via two concessional swap facilities and bringing down the current account deficit through higher taxes on gold imports.
With the interim budget out of the way, dealers are now focusing on the general elections as the next trigger. A stable government is expected to help bolster reforms and be rupee positive.
"INR continues to remain shockingly stable and is trading with a bullish bias, thought this cannot be disentangled from the weak-USD macro environment enough to say that it is on account of Indian-bullish factors," said Sacha Tihanyi, a senior currency strategist at Scotiabank in Hong Kong.
"Technically speaking, we are heading towards 61.50 as the next USD/INR downside target."
The partially convertible rupee closed at 62.20/21 per dollar versus its close at 61.84/85 on Monday. It fell 0.58 percent, its biggest daily fall since Jan. 27.
Indian bond and currency markets will be shut on Wednesday for a religious holiday.