The rupee fell for a second consecutive session on Thursday as local stocks were pummelled, while risk currencies such as the euro were hit by intensifying worries about the global economy.
The rupee fell even after data showed May industrial output rose 2.4 percent in May, much higher than the 1.8 percent growth expected by a Reuters survey of analysts. The good news was offset after the April numbers were revised downwards.
Although global risk factors are likely to impact the rupee in the near-term, few traders expect a repeat of June, when the currency slumped to a record low of 57.32 to the dollar.
Instead, hopes for policy reforms are expected to support the rupee. Government officials have strongly hinted at a potential hike in diesel prices, which would help alleviate concerns over India's fiscal outlook.
Traders have also cited signs of meaningful foreign flows. Preliminary regulatory data shows overseas investors bought a net 67.9 billion rupees in equities and 16.6 billion rupees in debt so far this month.
"There are no new factors to trigger any further depreciation in the exchange rate," said N. S. Paramasivam, chief executive at NSP Forex.
He expects the rupee to trade in a 55-56 range in the near term.
The partially convertible rupee closed at 55.93/94 as per the SBI closing rate, down from its Wednesday's close of 55.62/63.
Asian currencies were under pressure after a surprise rate cut from South Korea and a 50-basis point reduction in Brazil underscored the widespread nature of the global economic slowdown.
The euro fell to a two-year low against the dollar, hit as well by uncertainty about Europe's progress in addressing the debt crisis.
The rupee was also pressured by the slump in local stocks after software service exporter Infosys
The BSE Sensex declined 1.5 percent, marking its biggest fall since June 1.
Despite, the worsening global risk environment, NDFs are not signalling a renewed fall to record lows for the rupee.
The one-month offshore non-deliverable forward contracts were quoted at 56.22 while the three-month were at 56.88.
In the currency futures market, the most traded near-month dollar-rupee contract on the National Stock Exchange, the United Stock Exchange and the MCX-SX all ended at around 56.03. The total volume was at $4.6 billion.
