Mumbai, Dec 17 (PTI) The rupee witnessed high volatility in early trade on Wednesday, as support from easing crude oil prices was offset by uncertainty over the India-US trade deal and persistent foreign fund outflows.

Forex traders said the key driver of rupee weakness in December was continued FPI selling across both equity and debt markets, with foreign investors repeatedly selling several billion dollars’ worth of Indian assets on a daily basis in the last few months, the selling intensifying in the last two months.

However, with Brent crude oil prices hovering near recent multi-year lows of USD 59 per barrel, the local unit was supported at lower levels.

At the interbank foreign exchange market, the rupee opened at 91.05 against the US dollar, down 12 paise from its previous close.

The domestic unit, however, witnessed a sharp recovery and appreciated 97 paise to touch an early high of 89.96 against the American currency and was trading at 90.18 against the US dollar at 09.46 hrs.

On Tuesday, the rupee tanked below 91 per dollar, hitting a low of 91.14. It finally settled at 90.93 against the American currency.

Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.17 per cent higher at 98.31.

Brent crude, the global oil benchmark, was trading at USD 59.54 per barrel in futures trade, as record non-OPEC supply, weak China data and optimism over a Ukraine ceasefire were the main reasons for the current fall, traders said.

Meanwhile, Minister of State for Finance Pankaj Chaudhary on Tuesday informed Parliament that, "During the current financial year, the depreciation of the INR has been influenced by the increase in trade deficit and likely prospects arising from the ongoing developments in India's trade agreement with the US, amid relatively weak support from the capital account." "The depreciation of currency is likely to enhance export competitiveness, which in turn impacts the economy positively. On the other hand, depreciation may raise the prices of imported goods. However, the overall impact of exchange rate depreciation on domestic prices depends on the extent of the pass-through of international commodity prices to the domestic market," he said.

On the domestic equity market front, the 30-share benchmark index Sensex was trading 146.09 points higher at 84,825.95, while the Nifty was up 62.05 points at 25,922.15.

Foreign Institutional Investors sold equities worth Rs 2,381.92 crore on Tuesday, according to exchange data.

According to Anil Kumar Bhansali, Head of Treasury and Executive Director, Finrex Treasury Advisors LLP, the rupee may see a slow and steady move towards 92 in the coming days, with no signs of any trade deal happening between India and the US, which has also been a cause for the equities to fall. PTI DRR DRR DR

Rupee volatility driven by FPI outflows, trade deficit pressures and oil prices, affecting export competitiveness and import costs. Rupee volatility stems from large-scale FPI selling, an increasing trade deficit and India-US trade uncertainty, while lower Brent crude prices have intermittently supported the currency. Government statements note that exchange rate depreciation can boost export competitiveness but may raise import prices, with domestic price effects contingent on pass through from international commodity prices.