Rupee sees biggest fall in 3 weeks on broad dollar gains

The rupee weakened for a fourth consecutive session on Tuesday, dropping the most in three weeks, tracking weaker Asian currencies amid caution ahead of key events including a European Central Bank meeting and US monthly jobs data.

Data showing the April-June current account deficit widening from the previous quarter due to rising imports hit sentiment at first, although traders later said the gap was still within the comfort zone.

Sentiment was also soothed after India's balance of payments was in surplus for a third straight quarter in April-June.

"The overall sentiment remains bullish on the rupee so a small negative on the current account balance doesn't matter," said Naveen Raghuvanshi, a foreign exchange dealer with DCB Bank.

"The ECB rate meeting outcome could prove to be crucial for the rupee if they do ease policy further. The rupee is likely to hold in a 60.40 to 60.80 range

in the rest of the week," he added.

The partially convertible rupee closed weaker at 60.68/69 versus Monday's close of 60.5250/5350. The 0.2 per cent fall on the day, is the biggest single-day decline since Aug. 13.

Broad gains in the dollar hurt the local unit. The index of the dollar against six major currencies was up 0.3 per cent. Most Asian currencies too traded weaker against the greenback.

Caution prevails ahead of the ECB policy meeting on Thursday which could result in additional monetary stimulus.

Such an outcome could benefit the rupee by raising expectations for additional foreign flows into the country.

Indian shares hit record highs on Tuesday on the back of optimism about an economic recovery.

Markets are also looking forward to U.S. employment data, which could help adjust expectations about when the Federal Reserve will remove its monetary stimulus.

In the offshore non-deliverable forwards, the one-month contract was at 61.05 while the three-month was at 61.64.