Beating market expectations, the spot rupee-dollar exchange rate fell to the lowest level in eight months. Dealers attributed the slide to aggressive buying of the US currency by refining companies to meet import payment obligations as crude oil prices crossed the $120 a barrel mark.
The rupee breached 40.80 during the second half of trading on Tuesday and closed at an eight month low of 40.94/95 against the dollar. The spot rupee had reached 40.80 in March but could not go past the mark due to aggressive selling of dollars by exporters, said a dealer.
So, the market believed 40.80 is a crucial barrier since it could now see further highs after breaching that level. Dealers now expect the rupee to touch 41.15/41.20 very soon.
"Barring the rush for dollars triggered by a sharp rise in crude prices, the market was otherwise quiet during the day. There was intense action after crude oil prices touched a new high after 3.30 pm," a dealer said.
The rush for dollars to make import payments was coupled with demand for dollars by foreign banks which were buying on behalf of foreign institutional investors (FIIs). Following a correction in the equity market, there was profit booking and repatriation by FIIs, said a dealer.
In addition, existing positions of the banks in the dollar-rupee market needed to be covered since no one expected the rupee to depreciate so fast beyond 40.80 to a dollar.
They added that the demand for dollars by oil companies was countered by selling by exporters, but the supply of dollars could not match the demand.
So, even if the exporters rushed to sell dollars, the spot rupee moved one way