The rupee slipped 5 paise to 76.25 against the US dollar in opening trade on Wednesday amid strengthening US dollar and escalating tension between India and China near the border.
Forex traders said besides the border tension with China, foreign fund outflows and concerns regarding rising COVID-19 cases also weighed on investor sentiment.
The rupee opened weak at 76.21 at the interbank forex market and fell further to 76.25 against US dollar, down 5 paise over its last close.
It had settled at 76.20 against the US dollar on Tuesday. 20 Indian Army personnel were killed in the clash with Chinese troops in the Galwan Valley on Monday night, the biggest military confrontation in over five decades that has significantly escalated the already volatile border standoff between the two countries.
"Rupee is spooked as India-China tensions escalate," said Abhishek Goenka, Founder and CEO, IFA Global. Goenka further said "the troops have disengaged and talks are on between both government and militaries to defuse the tensions. The developments on this front will be tracked very closely. While an all out armed conflict is not likely, imposition of economic/trade sanctions will be taken negatively by markets".
Meanwhile, the domestic equity market was trading on a muted note with the 30-share BSE benchmark Sensex trading 15.80 points higher at 33,621.02 and broader NSE Nifty up 1.75 points at 9,915.75.
Foreign institutional investors were net sellers in the capital market as they sold shares worth Rs 1,478.52 crore on Tuesday, according to provisional exchange data.
Brent crude futures, the global oil benchmark, fell 1.59 per cent to USD 40.31 per barrel. The dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.02 per cent to 96.97.
Meanwhile, investor sentiment remained fragile amid rising coronavirus cases across the world. Globally, the number of cases linked to the disease has crossed 81.73 lakh and the death toll has topped 4.41 lakh. In India, the death toll due to COVID-19 rose to 11,903 and the number of infections rose to over 3,54,065, according to the health ministry.