BackRupee dips to 2-week low on dollar demand
Rupee dips to 2-week low on dollar demand
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Mumbai: The rupee fell to its lowest level in two weeks on Monday weighed down by dollar demand from two large corporates and a sharp fall in the offshore forward rupee.
The partially convertible rupee closed at 47.12/13 per dollar, after hitting 47.13, which was its weakest since 7 July, and 0.7% below its previous close at 46.80/81.
“There was some nervousness in the market today ahead of the stress test results and the central bank’s policy meet," said a dealer with a large state-run bank.
“Also at the kind of levels the Sensex (main stock index) was at today, one wasn’t expecting huge foreign fund flows."
The euro rebounded on Monday from early lows hit after Ireland’s ratings downgrade and the suspension of talks between Hungary and international lenders, but traders remained wary ahead of bank stress test results.
A large infrastructure company and another large energy producer were buying dollars in the market, which weighed on the local unit, two state-run bank dealers and one private bank dealer said.
One-month offshore non-deliverable forward contracts were quoted at 47.33, much weaker than the onshore spot rate, suggesting a bearish near-term outlook.
“There were some bids tracking the NDF market. Seeing it go down to 47.20 levels," said Vikas Chittiprolu, a senior foreign exchange dealer with state-run Andhra Bank.
Dealers said some losses in shares weighed and they would be watched for cues on foreign fund flows.
Shares gave up nominal gains to close 0.15% lower, as weak global sentiment caused by disappointing US economic data and corporate revenues outweighed robust domestic economic growth and earnings expectations.
Foreign portfolio inflows of $8.5 billion so far in 2010 have powered Indian share gains and are a key determinant of the rupee’s fortunes. Last year, record $17.5 billion purchases had helped the rupee gain 4.7%.
“For the fortnight, we expect the pair to continue to reflect global skittishness and estimate the INR to trade in the range 46.75-47.50/USD," economists at Yes Bank said in a note.
Dealers said they would continue to watch the dollar’s moves versus majors for cues during the week.
“We expect the INR to weaken against the USD this week on weaker risk appetite and look for USD/INR to trade in a range of 46.45-47.20," economists at Barclays Capital said in a note.
“In the medium term, we believe the INR will continue to underperform its regional peers," they said.
“We believe USD strength, the elevated INR REER and significant inflation differentials imply a reversal of the long period of INR strength, with increases in the current account deficit also weighing on the INR."
In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange and MCX-SX closed at 47.1950 and 47.1850 respectively, with the total traded volume on the two exchanges at about $4.6 billion.
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