The sentiment in forex market turned weak after the country's current account deficit widened in the December quarter on the back of higher trade deficit.
The CAD, which shows the difference between foreign exchange earned and spent, rose to 2 per cent of the GDP at USD 13.5 billion in the December quarter against USD 7.2 billion or 1.1 per cent of GDP in the September quarter, according to the RBI data.
The US Federal Reserve is widely expected to hike interest rates for the first time in 2018 in its meet starting tomorrow -- the first under new chief Jerome Powell -- which weighed on the rupee, a dealer said.
Vinod Nair, Head of Research, Geojit Financial Services Ltd said the "rupee weakened due to widening current account deficit" and rising bond yields.
The yields on US government bonds rose to multi-year high ahead of the Federal Open Market Committee meet.
The rupee started on a negative note today and hit the day's low of 65.19 in intra-day levels at the Interbank Foreign Exchange (forex) market and remained under pressure for the better part of the session on a firm dollar overseas.
It finally settled down at 65.17, revealing a loss of 23 paise, or 0.35 per cent. The rupee earlier had closed at this level on March 9.
Meanwhile, the US dollar held firm against a basket of major peers in Asian trade as the increased threat of trade protectionism kept markets on edge.
The Reserve Bank of India today fixed the reference rate of the rupee at 65.0375 against the US dollar from 64.8737 and 79.7750 for the euro from 79.9114.
Domestic stocks continued their slide for the fifth straight session on unabated foreign fund outflows. The BSE-Sensex dropped 252.88 points, or 0.76 per cent, to end at 32,923.12, while Nifty shed 100 points to 10,094.25.
Foreign investors however put in Rs 292.23 crore on net basis in stock markets.
In cross-currency trades, the rupee took a further knock against the pound sterling and finished at 90.5582 per pound from 90.4858 and dropped sharply against the Japanese yen to close at 61.5000 per 100 yens from 61.2700 on Friday.
The home unit traded against the euro at 79.7750 compared to 79.9114 earlier.
In the forward market today, premium for dollar moved up owing to mild paying pressure from corporates.
The benchmark six-month forward premium payable in August moved to 124-126 paise against 123.50-125.50 paise earlier. The fag-forward February 2019 contract were up at 243.50-245.50 paise against 243-245 previously.