Rupee weakens to near 2-week low

Dollar demand from oil firms and other importers weighed on the currency

The rupee weakened to a two-week low on Monday, dropping for a fourth straight session, as dollar demand from oil firms and other importers weighed.

Traders said the rise in global crude oil prices on Friday pushed up greenback demand from oil importers, the largest buyers of dollars in the domestic currency market.

Concerns about economic growth also continued to weigh after Reserve Bank of India Governor Duvvuri Subbarao said inflation was "still high," casting doubt about whether the central bank would cut interest rates at its March policy review in spite of sharply slowing economic growth.

"The rupee was mostly stuck in a band in light volumes but there was good demand from oil firms which pushed the unit down," said A Ajith Kumar, a foreign exchange dealer with Federal Bank, adding the market would now await the factory output data on Tuesday for near-term direction.

The partially convertible rupee closed at 53.8450/8550 per dollar versus its previous close of 53.50/51. It dropped as low as 53.86, its lowest since January 29.

A weaker euro also hurt sentiment, with the common currency within sight of a two-week low against the dollar, while regionally trading was muted as most Asian markets were closed for the Lunar New Year holiday.

Traders said lack of dollar supplies also hurt the rupee with the unit expected to move in a broad range of 53.50 to 54.00 until the factory output data on Tuesday.

The worst is probably over for flagging factories but production was likely subdued in December and may have risen an annual 1.1% as global demand remained weak, a Reuters poll showed.

In the offshore non-deliverable forwards, the one-month closed at 54.12 while the three-month closed at 54.70.

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 53.98 with a total traded volume of $3.7 billion.