The rupee tanked 82 paise to settle at its record low of 95.31 (provisional) against the US dollar on Monday after US President Donald Trump rejected Iran's response to the West Asia peace proposal, following which crude oil prices surged rapidly.
Prime Minister Narendra Modi urging citizens to avoid buying gold and embrace austerity measures further dented market sentiments.
A strengthening US dollar and steep foreign capital outflows further pressured the local unit, according to forex traders.
At the interbank foreign exchange, the rupee opened at 94.97 and traded in the range of 94.87-95.34. It eventually settled at its record low of 95.31 (provisional), down 82 paise from its previous close.
On Friday, the rupee had closed at 94.49 against the US dollar.
Iran, meanwhile, has sent its response to the latest US ceasefire proposal via Pakistani mediators and wants negotiations to focus on permanently ending the war, Iran's state-run media said on Sunday.
Trump rejected Iran's proposal to end the months-long war as "totally unacceptable" without sharing details even as a key Republican leader urged him to consider the "military option".
PM Modi on Sunday appealed to people of the country for judicious use of fuel, postponement of gold purchases and foreign travel, among other measures, amid the ongoing conflict in West Asia.
"PM Modi asked for a slowdown on buying petrol, gold, foreign trips, etc., to save foreign exchange to keep fiscal deficit lower. The implication of these steps in the short term would be a slowdown in growth," Anil Kumar Bhansali, Head of Treasury and Executive Director, Finrex Treasury Advisors LLP, said.
"While Trump did not agree to Iran's reply on his peace proposals, it took oil to USD 105 levels and dollar index to above 98 levels keeping them well bid... The rupee is expected to remain between 94.75 and 95.50 on Tuesday," he said.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading at 98.02, up 0.13 per cent.
Brent crude, the global oil benchmark, rose 2.52 per cent to USD 103.8 per barrel in futures trade.
On the domestic equity market front, the Sensex crashed 1,312.91 points, or 1.70 per cent, to 76,015.28, while the Nifty plummeted 360.30 points, or 1.49 per cent, to 23,815.85.
Foreign Institutional Investors offloaded equities worth Rs 4,110.60 crore on Friday, according to exchange data.
India's forex reserves dropped by USD 7.794 billion to USD 690.693 billion during the week ended May 1, the RBI said on Friday. In the previous reporting week ended April 24, the overall reserves declined by USD 4.82 billion to USD 698.487 billion.
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