Mumbai: The rupee dropped the most in almost three months as North Korean missile and nuclear tests fuelled tension in Asia, spurring concern foreigners will pare holdings of regional stocks.
The rupee slid for a second day versus the dollar, following its biggest weekly gain in 13 years, as a technical indicator signalled the currency would depreciate. It also weakened on speculation local companies are taking advantage of recent gains to settle month-end import payments, said Roy Paul, assistant manager of treasury at Federal Bank Ltd in Mumbai. The Bombay Stock Exchange’s benchmark index, Sensex, dropped the most in a month, tracking losses elsewhere in Asia.
The rupee is weaker as equity-market sentiment is jittery across the region, Paul said. Also, dollar demand from importers is expected to pick up before the month ends.
The currency declined 1.3% to 47.9275 per dollar at close in Mumbai, after slipping 0.4% on Monday, according to data compiled by Bloomberg. It jumped 4.9% last week and touched 46.99 on 22 May, the strongest level since 19 December.
The dollar-rupee’s 14-day relative strength index, a technical gauge derived by averaging daily gains and losses, was 25 at the end of last week and 28 at Monday’s close. A reading below 30 indicates to some investors the greenback is likely to rally.
Offshore contracts indicate traders predict the rupee will trade at 48.05 to the dollar in a month, compared with expectations of 47.46 on Monday. 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.
Nine of Asia’s 10 most used currencies excluding the yen weakened on Tuesday against the dollar after North Korea on Monday conducted a nuclear test for the first time since October 2006.
South Korea isn’t ruling out the possibility its communist neighbour will conduct further explosions, Yonhap News Agency reported.
Kim Jong Il’s government also test-fired two short-range missiles on Tuesday, Yonhap reported, following similar launches on Monday.
The rupee’s losses were tempered as India’s finance minister Pranab Mukherjee said there are indications of a revival in economic growth and added that he will use next month’s budget to build on the recovery.
Mukherjee told CNBC-TV18 channel on Tuesday that enough money must be made available for construction of roads, ports and other infrastructure, besides addressing the problems of exporters hit by the global recession.