Mumbai: The rupee hit a near one-year low on Friday and was at a striking distance of an all-time low, but dollar selling by some exporters and state-run banks helped the unit recover some ground. The rupee has been falling sharply since the start of May on concerns about the US Federal Reserve withdrawing its monetary stimulus and the Reserve Bank of India not cutting rates as much as previously anticipated.
The local currency has been falling for five straight weeks, taking its losses since the start of May to 5.71 per cent, to make it among the worst performing currencies in Asia during this period. Bearish bets on the rupee also increased to their largest since late June 2012 as continuing worries about the country's current account deficit weighed on sentiment and as the unit came under pressure from importers' dollar demand.
RBI Governor Duvvuri Subbarao warned on Friday that a high current account gap could feed into a weakening rupee and calibrating the monetary policy in such an environment was a challenge. Traders said foreign banks were seen adding long dollar positions based on their non-deliverable forward-related bets on Friday, causing the rupee to hit a near one-year low.
There was also continued dollar buying from oil refiners, the largest buyers of dollars in the domestic currency market. However, with one-year onshore forward outright rates touching 60 to a dollar, exporters rushed in to sell.
"Non-deliverable forwards were trading higher as there was some position building ahead of the NFP data and we saw that pushed down the rupee in the spot. Exporters, however, were happy to sell dollars above 57 levels," said Vikas Babu Chittiprolu, a senior foreign exchange dealer with state-run Andhra Bank.
The partially convertible rupee closed at 57.06/07 per dollar compared with 56.84/85 on Thursday. It fell to 57.12 during the session, its lowest since June 27, 2012. On the week, the unit fell 1 per cent, its fifth straight weekly drop.
US non-farm payroll data due after market hours will be critical for opening cues on Monday. Recent US economic data has been mixed, which has left investors caught between fears the Fed will reduce its stimulus and worries the US economy is still weak.
"We continue to hold a bearish outlook on the rupee and see it breaching the all-time low of 57.32 levels very soon. The level of 58 and above seems to be likely as the FED is planning to taper the QE3 by this year," said Abhishek Goenka, chief executive of India Forex Advisors in Mumbai. In the offshore non-deliverable forwards, the one-month contract was at 57.46, while the three-month was at 58.05.
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 closed at around 57.28 with a total traded volume of $5.4 billion.