Rupee hits over 2-1/2-month lows; further losses likely

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The rupee slid for a fifth day on Monday and hit its lowest level in more than two-and-a-half months, weighed down by heavy dollar buying by oil refiners, with gains in the euro failing to offer much respite.

Oil firms are the biggest buyers of dollars in the domestic market, with demand tending to peak at the end of each month when they are required to make payments to meet import commitments.

Traders said the absence of any large dollar supply in the market led to exaggerated moves in the dollar/rupee.

The adjournment of parliament for a third consecutive day was another dampener for the local currency as hopes that the government would push through key reforms in this session received yet another jolt.

"The rupee broke the key resistance of 55.80 today, so 56 looks quite likely in the near-term, possibly as early as tomorrow," said Subramaniam Sharma, director at Greenback Forex.

"There has been heavy demand from oil firms and the market was hoping that reforms for FDI in retail will get passed in this session, but that is looking difficult now. Hopes for inflows related to that have reduced, so exporters are also holding off and not selling, thus hurting the rupee," Sharma added.

Traders said they were also watchful of any central bank intervention after it was believed to have stepped in on Friday to prevent a sharp fall in the rupee. The next key resistance for the rupee is at 56.03, the low on September 6, traders said.

The partially convertible rupee closed at 55.73/74 per dollar, 0.35 per cent weaker than its Friday's close of 55.5350/5450. The unit had dropped as low as 55.89 during the session, its weakest since September 6.

Traders said gains in the domestic sharemarket failed to provide much respite for the Indian currency which appears to be getting more and more delinked from global markets, with sharp gains in the euro also not helping.

The BSE Sensex rose 0.16 per cent, led by gains in export-driven technology shares such as Infosys, following weakness in the rupee, while airline shares such as Jet Airways surged on stake sale talks.

Moves in shares are closely watched for gauging the foreign fund flow direction. Foreign funds have so far in 2012 purchased shares worth more than $19 billion.

The euro retreated from a seven-month high against the yen on Monday as traders booked profits on its recent rally, although expectations that Greece will secure new emergency loans would check losses.

In the offshore non-deliverable futures market, the one-month contract was at 56.04 while the three-month was at 56.61.

The one-month onshore forward premiums rose as high as 32 points, its highest in a week and compared with 29.50 points on Friday as lack of dollar supply in the system pushed up premiums.

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 56.69 with a total traded volume of $7.7 billion.