Rupee crashes 65 paise vs dollar to near 11 month low of 62.94

MUMBAI: The rupee on Monday closed nearly 11-month low against the US dollar as overseas investors started seeking safety of dollar while winding up their emerging markets portfolios ahead of the calendar year-end on global growth concerns.

The local unit closed weaker at 62.95 per dollar, its lowest level since January 28 compared with Friday's close at 62.30, a dip of more than 1% or 65 paisa. It has actually posted its biggest single-day fall in more than four months, mirroring weakness in other emerging market currencies. The central bank was not seen as having stepped in to prevent more losses in the rupee, dealers said.

"The sharp fall was due to unwinding of arbitrage positions in the non-deliverable market as well as short-covering from the option sales in the over-the-counter and exchanges," said Anindya Banerjee, currency research analyst at Kotak Securities….as stop losses were triggered above 62.50/dollar level,”

In the one month non-deliverable forward – an offshore derivative currency market – arbitrage opportunities have narrowed down significantly to zero to one paisa compared with 11 paisa a week earlier. In the two-month forward, it is now 15 paisa as against 20-25 paisa during the same period.

Using the rate differential between onshore and offshore markets, some currency traders who are known as speculators in market parlance, are engaged in arbitrage trading, trying to make a quick buck.

Weak domestic industrial output data added to the negative sentiment in a knee-jerk reaction. Data released on Friday showed the index of industrial production (IIP) shrank 4.2% in October, worsened by manufacturing, which contracted 7.6%.