Mumbai: The rupee dropped on Tuesday, snapping a three-day winning streak, as strong dollar demand from oil firms to meet month-end import commitments and a pullback in domestic shares from the day’s highs weighed heavily.
The rupee, which had hit a record low against the dollar on Thursday, appears vulnerable for further falls, especially given fragile global risk sentiment because of the euro zone’s woes.
Concerns about India’s fiscal and economic challenges are also impacting the rupee. The country said on Tuesday it will allow foreign retail investors to buy up to $1 billion in local corporate bonds in its latest move to bolster capital inflows and support the shaky rupee.
However, the action was seen as too small to have a meaningful impact. It also followed on the heels of the government’s announcement delaying any consideration of an immediate hike in fuels such as diesel, which traders had seen as vital for India to reduce its fiscal deficit.
“INR will go above 56.00 only after euro breaches $1.2520, which I feel can happen in couple of days. Additionally the government statement of no reduction in subsidy for kerosene, LPG and diesel is negative for the market,” said Pramod Patil, a forex trader with United Overseas Bank.
The partially convertible rupee closed at 55.67/68 per dollar, 0.9% below its close of 55.1850/1950 on Monday.
The unit had hit a series of record lows over the previous two sessions, culminating in a lifetime low at 56.40 on Thursday.
The rupee reversed its gains over the previous three sessions, as oil companies, the largest buyers of dollars in the domestic currency market, stepped in to meet their end-of-month requirements.
The local unit was also hit by bunched up outward corporate dollar remittances after Monday’s public holiday in the United States, and as domestic stocks gave up most of their earlier advances to end up with slight gains ahead of the derivatives expiry later this week.
The fate of the euro will be key in the near-term as investors and speculators sold the common currency on persistent worries over Spain’s escalating borrowing costs and its weakening banking sector.
The one-month non-deliverable forward rate was quoted at 56.09, while the three month was at 56.78.
In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all ended around 55.9450 on a total volume of $4.8 billion.