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Rupee expected to weaken further amid dollar
May, 17th 2010

The rupee is expected to weaken further against the dollar during this week amid dollar buying by banks, oil companies and importers.

Due to the sovereign debt crisis which will persist in the near future, investors will exit more from the euro and will consider dollar as a safer haven. The dollar demand will weaken the rupee further, said Jagannadham Thunuguntla, chief strategist, SMC Capital.

Banks are expected to buy the greenback anticipating a fall in domestic share indices, which may spur outflows from
foreign funds. Dollar demand by oil companies and other importers could also keep the Indian unit under pressure.

The turmoil in the European countries has heightened risk aversion globally. All Asian currencies, expect the yen, are expected to take a hit. The euro going down will have a negative impact on Indian stock markets as well as the rupee, said Satyajit Kanjilal, chief executive officer, ForexServe.

The rupee may touch Rs 45.70 per dollar during the week. We expect the rupee to be in the range of Rs 44.80 to Rs 45.70 against the dollar and the movement will be more skewed towards weakening, said RVS Sridhar, head of global markets, Axis Bank.

The rupee ended at Rs 45.20 per dollar last week, compared with Thursdays close of Rs 45.07/$. The euro slid below the $1.2500 mark and local shares fell over 1%, which caused the rupee to weaken against the greenback. The euro was at $1.2476 on Friday, compared with $1.2536 on Thursday.

Nifty closed on Friday at 5093.50, down 85.40 points or 1.65% from Thursday. Intraday, it traded between 5070.95 and 5192.75. The Sensex ended at 16994.60, down 271.27 points or 1.6%, after trading between 16923.65 and 17329.32 intraday.

Key share indices are seen trading with a negative bias this week as sentiment is likely to be subdued after the Nifty ended below the 5100-mark on Friday.

Reduced risk appetite on fears over public unrest in the Eurozone and worry over the credibility of the European Central Bank weighed on the euro.

The rupee is weakening against the dollar due to external factors. We may see more strengthening of the dollar and weakening of the euro during the week, said C Chandrasekhar, senior VP, Mecklai Financial.

The latest forex reserves data released by the Reserve Bank of India (RBI) shows reserves fell by $3,395 million ($3.4 billion) over the week ended May 7 to $276,238 million. It was the sharpest weekly fall in forex reserves since January 23, 2009. Foreign currency assets fell by $3,300 million to $251,473 million, the central bank said.

The reserve position with the International Monetary Fund was down by $20 million over the week to $1,321 million.

The fall in the value of the euro against the dollar have resulted in this sharp fall in reserves, said Arun Kaul, executive director, Central Bank of India. There may not be an intervention by the RBI in the forex market, Kaul said.

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