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The weakening spree in the rupee against the dollar continued for the second straight day. According to currency dealers the weakness was due to dollar buying by state-run banks. Caution ahead of key consumer inflation data in the day also weighed.
The rupee ended weak at a level breaching the Rs 61 per dollar mark at Rs 61.22 compared with previous close of Rs 60.95 per dollar. The rupee had opened at Rs 61.13 and during intra-day trades touched a low of Rs 61.27 per dollar.
"The dollar buying was due to defense related payments and meeting the demands of oil marketing companies," said a currency dealer with a state-run bank. As per estimates of currency dealers in state-run banks, the dollar demand of these public sector OMCs are in the range of $ 6-7 billion per month.
Traders also said the rupee tracked falls in regional shares and currencies as economic uncertainty in China and the United States come amidst political tensions in Ukraine.
Till Monday the rupee had appreciate to a seven-month high and from there it slipped yesterday. But despite that the rupee has appreciated by 11 per cent since August 28 when it had touched an all-time low of Rs 68.85 per dollar in intra-day trades.
"The rupee's gain to 60.60 was an overshoot. The market is now speculating that the RBI may look to buy dollars to restore forex reserves and preserve export competitiveness, which is leading investors to cut their dollar shorts," said Param Sarma, chief executive officer at NSP Forex.
According to currency dealers in the next few days the rupee may weaken further as month-end dollar demand from importers will begin. Besides that the street believes a part of this dollar buying by state-run banks may go into the foreign exchange reserves of the central bank.
Foreign exchange reserves rose by $ 954.6 million for the week ending February 28 to $ 294.36 billion, showed RBI data released Friday.
Traders will also continue to monitor foreign fund flows. Foreign investors bought shares worth $250.30 million on Tuesday, their 17th buying over the previous 18 for a total of over $1.8 billion. FIIs have purchased a total $5.8 billion in debt in 2014.
