Mumbai, Jul 28 (PTI) The rupee pared initial gains and settled for the day 18 paise lower at 86.70 against the US dollar on Monday, as month-end dollar demand from importers continued to keep the American unit well bid.

Forex traders said investors traded cautiously awaiting the outcome of India-US trade talks ahead of the August 1 deadline. Moreover, a negative trend in the domestic equity markets dented investors' sentiments further.

Investors also remained cautious ahead of the US Federal Reserve and Bank of Japan's monetary policy decisions next week, they said.

At the interbank foreign exchange, the domestic unit opened at 86.47 against the greenback and touched an intra-day high of 86.40 and a low of 86.70 against the greenback.

At the end of Monday's trading session, the local unit settled at 86.70, down 18 paise over its previous closing price.

On Friday, the rupee declined 12 paise to settle at 86.52 against the US dollar.

"The Indian rupee has depreciated against the US dollar, mirroring the trend of most Asian currencies. This weakening is largely attributed to the strengthening dollar, which gained momentum following the recent EU-US Trade deal.

"The dollar's rise was further fuelled by a buying spree leading up to the trade deal deadline, coupled with foreign fund selling in the Indian market," said Dilip Parmar, Research Analyst, HDFC Securities.

In the near-term, the spot USD-INR pair is expected to find support at 86.10 and face resistance at 86.75, he added.

Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.54 per cent to 98.17.

Brent crude, the global oil benchmark, went up by 0.85 per cent to USD 69.02 per barrel in futures trade, after the EU and US reached a trade agreement that eased tariff concerns and boosted future energy demands.

In the domestic equity market, the 30-share BSE Sensex declined 572.07 points, or 0.70 per cent, to close at 80,891.02, while the Nifty fell 156.10 points, or 0.63 per cent, to settle at 24,680.90.

Foreign institutional investors (FIIs) offloaded equities worth Rs 6,082.47 crore on a net basis on Monday, according to exchange data.

Forex traders said rupee is trading with a slight negative bias amid uncertainty ahead of the August 1 trade deal deadline.

If the discussions fail or get delayed, Indian exporters could face fresh pressure -- adding to the rupee's challenges.

However, if a deal is reached, it could offer a much-needed breather. Until then, the uncertainty is likely to keep market participants cautious.

"We expect the rupee to trade with a negative bias as trade deals between India and the US continue to linger," Anuj Choudhary, Research Analyst at Mirae Asset Sharekhan, said.

"Month-end dollar demand from importers may also weigh on the domestic currency. Investors may remain cautious ahead of the US Federal Reserve and Bank of Japan's monetary policy decision next week. USD-INR spot price is expected to trade in a range of Rs 86.35 to Rs 86.90," Choudhary added.

India's industrial production growth slowed to a 10-month low of 1.5 per cent in June 2025 due to poor performance of mining and power sectors, which were impacted by excess rains especially in second half of the month, according to official data released on Monday.

The factory output, measured in terms of the Index of Industrial Production (IIP), had expanded by 4.9 per cent in June 2024.

Meanwhile, the RBI data released on Friday showed India's forex kitty declined by USD 1.183 billion to USD 695.489 billion during the week ended July 18.

In the previous week, the overall kitty had dropped by USD 3.064 billion to USD 696.672 billion. The reserves had touched an all-time high of USD 704.885 billion at end-September 2024. PTI DRR HVA

Exchange rate pressure: rupee weakens amid importers' dollar demand, portfolio outflows and trade talk uncertainty affecting reserves. The rupee settled lower against the dollar as month end importer dollar demand, foreign portfolio outflows and a stronger dollar pressured the currency. Market caution ahead of India-US trade talks and upcoming US and Japan monetary policy decisions reinforced a negative bias. RBI data showed a recent decline in foreign exchange reserves, while slower industrial production and equity market outflows were cited as additional stressors that could affect currency stability.