MUMBAI: The rupee posted its worst loss in more than a month on Wednesday sending the local currency to a two-month low of 49.33 against the US
dollar.
Dealers said it was after many days that banks bought the dollar with a vengeance to arbitrage in the non-deliverable forwards market. Even intervention from the Reserve Bank of India to support the rupee could not counter the demand for the dollar, they added. A stronger dollar in global currency markets boosts the offshore non-deliverable forwards market.
Support for the rupee from the central bank usually comes at 49.25 levels. Traders usually consider this a resistance for the local unit’s trade. With the support not holding, the fall was steep. The rupee closed at 48.83 level on Monday.
“There was a huge demand for the greenback from players trying to arbitrage the difference between the currencies quoting at the onshore market and that in the NDF market,” said Navin Raghuvanshi, associate vice-president, foreign exchange trading at DCB Bank. “The fact that the stocks were falling and the US market was closed on Monday (reducing supply of dollars) did not help either,” he said. India’s key share benchmark BSE Sensex fell close to 3% to close at 9,035 pts. On Monday, the Interim Budget disappointed the markets, as it did not announce any major stimulus for the economy, as a section of the market had expected.
Dealers said most arbitrage was concentrated in the one-month forward contract. The one-month forward contract was quoting at 50.02 late in the evening, weaker than the onshore spot rate. For most part of Tuesday, this was in the range of 48.9 providing a clean 30-40 bps arbitrage. Banks regularly buy dollars locally and sell them offshore to take advantage of the high price differential, weakening the rupee in the spot market. The dollar rose broadly against major currencies, while the euro hit a more than two-month low on Tuesday, spurred by concerns over a deep recession in eastern Europe and the contagion effect on European banks.
The rupee’s fall impacted the gold market, with prices rising to touch a record high level of Rs 15,230 per 10-gram mark in the spot market in Mumbai. HSBC’s forex research team had recently said it expected the rupee to fall against the dollar through 2009, hitting 54 by the end of the year.
“The key drivers are likely to be significantly softer FDI and remittance inflows, reflecting the developed world credit crunch and downturn in the global labour market,” HSBC’s Richard Yetsenga said in a report.
Source : The Economic Times