Indian rupee falls

The Indian rupee weakened for the first day in three against the dollar, retreating from a one-week high earlier, as oil importers stepped in to buy the US unit, while waning greenback sales by corporates and exporters in late trade also hurt. Despite Monday's fall, the rupee remains well above the record low of 56.52 against the dollar hit on Thursday, indicating a near-term bottom after a rough last month.
The local currency was dented badly by a mix of global risk aversion and concerns about India's economic and fiscal challenges in May. Global risk factors will continue to be important, and traders say the Reserve Bank of India could intervene more aggressively should the rupee again fall below 56 to the dollar.
Some analysts say the central bank could also cut interest rates as early as this month, which may contribute to a recovery in the rupee by helping boost confidence in the sagging economy, one of the key factors behind the currency's slide. "Rupee could gain towards 55 per dollar if oil companies refrain from buying in the market, while the topside may be capped at 56 on expectations of RBI coming in," said Uday Bhatt, senior manager forex dealing with state-run UCO Bank.
The partially convertible unit closed at 55.66/67 per dollar as per SBI, falling from its 55.54/55 close on Friday and the one-week high at 55.26 hit earlier in the session. The rupee had started the session with gains, as a mid-sized infrastructure company was spotted selling dollars for a third straight session.
One trader said the company had $1 billion worth of inflows, of which $650 million had hit the market on Thursday and Friday. In the near-term, the rupee could also benefit as demand for dollars from oil importers typically wanes as the beginning of the month, although they do step in to take advantage of levels. "The rupee may start stronger tomorrow, and I expect oil firms to come in again, so broadly see the rupee in a 55.20-55.70 band," said Hari Chandramgathan, a forex dealer with Federal Bank.
RBI intervention would be the most important factor in the near-term, however. After frequent interventions in both spot and forward markets last month, the RBI is believed to have stayed mostly in the sidelines in recent days. Analysts say the rupee would need increased confidence in the economy to sustain gains, either in the form of fiscal consolidation steps from the government, or potentially easier monetary policy from the central bank.
A deputy governor of the RBI said on Monday falling global oil prices as well as declining core inflation and growth in India give the central bank more room to adjust interest rates. Still, offshore traders expect further weakness in the rupee. The one-month offshore non-deliverable forward contracts were quoted at 56.01, while the three-month was at 56.73. 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 all ended around 55.73 on a total volume of $4.3 billion.