Rupee touches 21-month low, may cross 45

The rupee hit a 21-month low against the US dollar on Tuesday as the American currency firmed up, coupled with the spurt in demand from importers. A further slide, however, was stemmed by the Reserve Bank of India.

The rupee ended at 44.823 as compared with 44.60/61 a dollar yesterday. Intraday, it reached a low of 44.93, a level last seen on December 12, 2006.

Apart from importers’ demand, the tone for the rupee slide was set by the dollar’s firmness in the Asian market.

The sentiment for the US currency has been upbeat after the US government’s decision to take over troubled mortgage companies Freddie Mac and Fannie Mae, a dealer with private bank said.

 

“The rupee is not the only currency depreciating against the dollar. Many major currencies, like the euro and pound, have also depreciated against the dollar.”

According to a senior State Bank of India official, many importers that kept their dollar positions (demands) open when the rupee was appreciating, have now panicked and are coming to take the hedge. This is driving rupee down.

The extent to which the domestic currency will weaken is also linked to RBI’s intervention in the market. There is huge mismatch in the demand and supply of the US dollar. “The price fluctuations also depend on the extent of dollar selling by the Reserve Bank of India,” said Moses Harding, executive vice-president, IndusInd Bank.

The demand from oil companies itself can push the dollar beyond 45. “We are advising clients (importers) to hedge their positions keeping in mind a band of 44.60-45.20. The pressure could escalate at month-end due to bunching of demand by oil companies,” Moses said.

The forward premium hardened across all tenors. The 6-month forward premium was at 3.03 per cent. The premia ended marginally up as banks bought forward dollars after the partial recovery in the spot rupee market, dealers said.

Outlook

The SBI official said that dollar demand was seen across the board. It may push rupee past 46 in the near term and could touch the 46.25-mark.

The trend is now for a weaker rupee on worries on the current account and the dollar’s rebound. “We may see 45.50 tested in the near term,” said a currency trader with a multinational bank.