Mumbai: The rupee fell on speculation refiners are buying dollars, betting crude oil prices will climb further from near an almost eight-month high.
The local currency closed at the lowest level in almost three weeks, following its worst weekly performance in three months, as the commodity’s 59% advance this year renewed concern India’s import costs will rise and hurt a recovery. Industrial output unexpectedly expanded in April for the first time in three months, fuelling speculation demand for crude oil will pick up in Asia’s third biggest economy.
Recovery hurt: The rupee dropped as much as 0.6% to 48 a dollar, the weakest level since 28 May, before closing at 47.75 in Mumbai. Rajkumar / Mint
Refiners are buying dollars in anticipation of stronger crude prices in the near term, said Vikas Babu, a Mumbai-based currency trader at state-owned Andhra Bank. They are also preparing for higher oil demand, which is weighing on the rupee.
The rupee dropped as much as 0.6% to 48 a dollar, the weakest level since 28 May, before closing at 47.75 in Mumbai, according to data compiled by Bloomberg.
Offshore contracts indicate bets the rupee will trade at 48 to the dollar in a month, compared with expectations for a rate of 47.81 on 12 June. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.
Oil shipments to India averaged $4 billion (Rs19,160 crore) from January through April, compared with $8.5 billion in the year-ago period. The trade deficit widened to $5 billion in April from $4.05 billion the previous month, according to government data.
Output at factories, utilities and mines grew 1.4% in April from a year earlier, the government reported on 12 June, compared with the median 0.1% contraction forecast by economists in a Bloomberg survey.
The local currency also fell on speculation the decline in benchmark stock index will prompt overseas funds to pare their holdings of the nation’s assets. The Bombay Stock Exchange’s Sensex fell for a third day, its longest losing streak since 22 April.