The rupee dropped 3 paise to close at an all-time low of 84.94 (provisional) against the US dollar on Wednesday, as traders await cues from the US Fed on the interest rate front.

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Forex traders said dollar demand from importers as well as foreign banks, foreign fund outflows and a muted trend in domestic equities further dented investor sentiments.

At the interbank foreign exchange, the rupee opened at 84.92 against the greenback, and touched 84.95 during intra-day trade. The unit finally ended the session lower by 3 paise at an all-time low closing level of 84.94 (provisional) against the dollar.

On Tuesday, the rupee revisited its all-time low closing level of 84.91 against the US dollar.

"We expect the rupee to trade with a negative bias on weak domestic markets and concerns over slowdown in the economy. A strong US dollar and FII outflows may further weigh on the rupee," said Anuj Choudhary -- Research Analyst at Mirae Asset Sharekhan.

Traders may take cues from the current account balance and housing data from the US. Investors may also watch out for the Federal Open Market Committee (FOMC) meeting decision. The US Federal is expected to cut interest rates by 25 bps to 4.5 per cent.

"USDINR spot price is expected to trade in a range of 84.75 to 85.20," Choudhary added.

Moreover, the rising trade deficit added strain on the rupee. This increase in trade deficit was driven largely by record-high gold imports in November.

India's exports in November contracted 4.85 per cent year-on-year to USD 32.11 billion, while the trade deficit widened to an all-time high of USD 37.84 billion due to a record surge in gold imports.
The country's gold imports in November reached a record high of USD 14.86 billion, registering a four-fold increase, mainly on account of festival and wedding demands, according to commerce ministry data.

Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading higher by 0.04 per cent at 107.

Brent crude, the global oil benchmark, rose 0.60 per cent to USD 73.63 per barrel in futures trade.

In the domestic equity market, the 30-share BSE Sensex closed 502.25 points, or 0.62 per cent, down at 80,182.20 points, while Nifty settled down 137.15 points, or 0.56 per cent to 24,198.85 points.

Foreign Institutional Investors (FIIs) offloaded Rs 6,409.86 crore in the capital markets on a net basis on Tuesday, according to exchange data.