Mumbai: The rupee weakened to its lowest level in three and half months on Thursday as a broad sell-off in emerging markets raised concerns about sustained risk aversion while the dollar’s gains versus majors hurt sentiment.
The partially convertible rupee closed at 46.81/82 per dollar, after hitting 46.83, its lowest since 8 February, and 1% below its previous close of 46.36/37.
On Wednesday, the rupee had dropped 1.64%, its biggest single-day fall in 15 months.
“The market was choppy intraday but overall direction was very clear as risk aversion is expected to stay for a while globally. Even other regional units were down,” a senior dealer with a foreign bank in Mumbai said.
“Provisional data shows foreign funds have pulled out a lot of funds, which is evident in the rupee’s fall. There is no chance the rupee won’t weaken in line with other Asians, tomorrow we may trade at 47,” he added.
The BSE Sensex nudged up 0.7%, a day after falling to its lowest close in two-and-a-half months, but lingering concerns about euro zone woes kept investors wary.
However, MSCI’s overall emerging market index, was down more than 0.9%, underperforming developed markets for an 8.9% year-to-date loss.
Foreign funds have already pulled out around $987 million from Indian equities so far in 2010, and there are concerns the pressure may continue until the euro zone situation improves.
The outflows have played a role in pushing the rupee down 5.2% in May and is down 0.6% on the year. Last year record inflows of $17.5 billion had helped the rupee rise 4.7%.
The index of the dollar against six major currencies was up 0.3%. Most Asian currencies were weaker compared to the dollar.
The South Korean won tumbled to its lowest in seven months on Thursday as investors scrambled to buy dollars to cut losses, leading other Asian currencies lower amid nagging worries over the euro zone’s debt crisis.
The euro fell 1% on the day against the dollar on Thursday to hit the day’s lows, tracking stocks lower as concerns grew about policy disarray in the euro zone.
One-month offshore non-deliverable forward contracts were quoted at 47.04, half 1% weaker than the onshore spot rate, suggesting a bearish near-term outlook.
In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange and MCX-SX closed at 46.90 and 46.8775 respectively, with the total traded volume on the two exchanges at about $8.25 billion.