Re down 32 paise as S&P warning sparks dollar demand

In sync with stock markets, the rupee on Monday surrendered its earlier gains and closed 32 paise down at 55.74 against the US currency as dollar demand from banks and corporates emerged at fag-end after S&P warned that it could lower India's sovereign rating.

Forex dealers said rupee weakened as investors fear the rating downgrade could hike international dollar lending rates for Indian corporates.

The rupee resumed higher at 55.10 per dollar compared to last week's close of 55.42 at the Interbank Foreign Exchange (Forex) Market as banks and corporates sold dollars in view of fresh capital inflows coupled with firm opening in stocks.

However, the rupee failed to maintain its opening gains and dropped to 55.82 before settling at 55.74 after stocks declined. This represented a loss of 32 paise or 0.58 per cent from its last close.

In the stock markets, the benchmark BSE Sensex resumed higher at 16,804.89 but fell after S&P's warning came. It closed a 16,668.01, a loss of 50.86 points of 0.30 per cent. FIIs bought stocks worth Rs 130 crore (Rs 1.3 billion).

"Today's rupee movement was a knee-jerk reaction to S&P report. Otherwise, the domestic currency opened on a positive note. Going ahead as the market digests the report, rupee will recoup," said N S Venkatesh, Head of Treasury, IDBI Bank.

Hemal Doshi, Chief Currency Strategist, Geojit Comtrade said the impact of S&P report would stay for few trading sessions in the forex market while rupee could trade in the 55-56.30 range in the short-term.

Last week, the domestic currency on a weekly basis had managed to log its first gain in 10 weeks, breaking the trend of nine consecutive weekly losses.

Globally, the euro climbed the most in six months against the dollar after Spain requested a bailout loan. The 17-nation currency rose to a two-week high but pared some gains as data showed the Italian economy contracted for a third quarter.

According to Pramit Brahmbhatt, CEO, Alpari Financial Services (India), the rupee started the day on a strong note taking global market cues but declined afterwards on rise in dollar index.

"The rupee is unable to break 55-levels from last few days in spite of the dollar index going below 82 levels reflecting the weakness in rupee on account of domestic weakness. The IIP figures are to be released on Tuesday which will be very closely eyed by all the market participants and the RBI officials before the Monetary Policy Review," said Abhishek Goenka, CEO, India Forex Advisors.

On April 25, Standard & Poor's affirmed its 'BBB-' long-term sovereign credit rating on India but revised the outlook on the rating to negative from stable.

The revision reflected at least a one-in-three chance of a downgrade in next two years if India's external position continues to deteriorate, GDP growth prospects diminish, or progress on fiscal reforms remains slow, it had said.

The premium for the forward dollar remained weak on sustained receivings by exporters.

The benchmark six-month forward dollar premium payable in November moved down to 145-147 paise from last Friday's close of 147-149 paise and the far-forward contracts maturing in May also declined to 266-268 paise from 270-272 paise.

The RBI fixed the reference rate for the US dollar at 55.2385 and for euro at 69.8215.

The rupee dropped further against the pound sterling to end at 86.64 from last weekend's level of 85.50 and also declined sharply against the Japanese yen to settle at 70.20 per 100 yen from 69.89.

It however, fell back to 69.93 per euro from 69.05 previously.

Share your ideas on how the rupee can be saved. See what others have to say.