Rupee weak on equities, euro fall

Rupee weak on equities, euro fall

At 2:14pm, the partially convertible rupee was at 52.22/23 per dollar, weaker from Thursday’s close of 52.065/075. The unit has so far moved in the 52.07-58.27 band.

Traders said some comfort was seen from the government’s decision to liberalise foreign investment in the $450 worth retail market, but big positions could be seen only after actual inflows materialise.

Views that the central bank would act to stem any sharp weakness in the rupee from current levels also helped limit the fall, traders said.

The Reserve Bank of India Governor D. Subbarao said the bank is watching the rupee, but could not say whether it will intervene in forex market directly.

The RBI is suspected to have sold dollars after the rupee hit record low of 52.73 on Tuesday. The rupee has slipped nearly 17% from its strongest point in 2011 hit late July.

Main share index was down more than 0.4% reflecting the global economic gloom.

The euro fell to a fresh seven-week low against the dollar on Friday and was set to weaken further as a lack of agreement between European leaders on how to tackle the spreading debt crisis in the euro zone continued to rattle nervy investors.

Oil is India’s biggest import item and local oil refiners are the largest purchasers of dollars in the domestic currency market.

However, the outlook for the rupee remains bearish.

“We expect the Indian rupee to continue to underperform Asian currencies given India’s current account deficit, limited capital inflows and the RBI’s relatively hands-off approach to foreign exchange management," said Barclays Capital in a research note.

Barclays also sharply revised its one-month forecast on the rupee to 54.00 from 48.50.

The rupee has fallen nearly 16.9% from its highest point in 2011 and is the worst performer among major Asian peers.

The one-month offshore non-deliverable forward contracts were quoted at 52.5, indicating a bearish short-term view on the on-shore spot rate.

The one-month onshore forward dollar premium was at 25.25 points from 28.25 on Thursday while the three-month was at 56.50 points from 62.5 points, and the one-year premium was at 146.75 points from 160.75 points.

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 were all at 52.19. The total volume was at $1.70 billion.