The Hindu Business Line : Re hits 3-yr low on oil concerns

The rupee plunged to a three-year low of 46.99/47 against the US dollar on Wednesday as domestic oil companies bought large amount of dollars in view of soaring crude oil prices.

Forex dealers said appreciation of the dollar against other overseas currencies also aided the rupee's fall. The bearish trend in the equity market also weakened sentiment in the local forex market.

The rupee dropped by 29 paise against dollar from the Tuesday's close of 46.70/71. The currency opened weak at 46.75 and touched an intra-day low of 47.04, to finally close at 46.99/47.

The domestic currency played weak against the US currency, as there was strong demand for dollars from petroleum companies, said Mr Rahul Pharadia, Deputy Manager, Forex, IndusInd Bank. Crude oil prices have been inching up and recently touched a record high of $78 a barrel.

"The rupee touched an intra-day low of 47.04, then came the Finance Minister's statement pacifying the market," he said. The rupee stabilised at 46.92 levels, but a surge in demand for dollars at that point drove the home currency down, he added. The Finance Minister assured the market that the rupee is stable in terms of real effective exchange rate. Dealers said there was hardly any intervention seen from the Reserve Bank of India.

"Overall the dollar strengthened against the global currencies, especially the Japanese yen," said Mr V. Rajagopal, Chief Dealer, Kotak Mahindra Bank Ltd. "The Indian rupee tracked the movement of yen," he said. Dollar may strengthen against other currencies over speculations of a possible interest rate hike in the US in August, said a dealer at a private bank. The market would closely watch US Federal Reserve Governor's speech, which is likely to touch upon the direction of interest rates, he said.

The market was expecting to see some support from equity markets. However, share prices dropped contributing to the rupee's decline, said Mr Pharadia. Key index, the BSE-Sensex, was down 219.44 points. FIIs have been net sellers of $1.13 billion in the past seven days.

"The biggest risk for the forex market is the geo-political tensions which creates uncertainty and the market does not like such tensions, said Mr Ajay Mahajan, President, Financial Markets and Institutions, Yes Bank. In the short term, emerging markets continue to be under pressure, he said.

The rupee is expected to trade in the range of 46.80-47, said the dealers. In the last one year, the domestic currency has weakened by Rs 3.43 against the dollar.

Stock markets down

Weakness in the rupee and continued selling by foreign funds took the benchmark BSE-30 Sensex below the 10,000-level for a brief period on Wednesday, before late buying in index heavyweight ONGC pushed the index to 10,007.34, down by 219.44 points from Tuesday.

The markets opened on a positive note with the Sensex gaining by over 100 points from previous close, but the nervousness in the rupee caught on to the stock markets soon. During the day, the Sensex fluctuated by 435.43 points.

NSE's S&P CNX Nifty Index closed lower by 60.9 points or 2.03 per cent at 2,932.75. IT stocks, including TCS, Wipro, led the fall, despite better-than-expected first quarter results.

"With interest rates firming up across the globe, there is an outflow of foreign funds from India," said Mr Vijay Kedia of Kedia Securities Ltd. Further, the lack of liquidity in mid and small cap stocks have forced investors to sell frontline stocks, he said.

The liquidity crunch is expected to continue considering the data emanating from the US suggesting further rate hikes.