Rupee slides on dollar buys

The rupee weakened on Friday as the euro’s weakness triggered a bout of dollar buying by importers, but a stronger closing for the stock markets limited the local currency’s losses.

The partially convertible rupee ended at 46.84/85 per dollar, about 0.3% lower compared with 46.69/70 at close on Thursday. It moved in a range of 46.5650 and 46.87 during the session. The rupee fell more than 1% on the week.

“The euro’s fall has raised risk aversion and the rupee has not escaped from the selling in emerging market currencies,” said a senior dealer with a foreign bank, adding he expects the rupee to trade in the 46.75 to 47.00 range on Monday.

The euro traded close to a four-year low as the euro zone’s financial problems weighed on sentiment and the dollar rose because of expectations of a strong US employment report. The index of the dollar against six major currencies was 0.7% up. The rise in local shares limited the rupee’s fall, traders said.

The rupee had fallen 4.3% in May on foreign fund outflows of $2 billion in the month. Foreigners are still net buyers of $4.5 billion worth of shares so far in 2010.

Traders said the market did not react to comments from Indian finance minister Pranab Mukherjee that there will be no pause in rate hikes. India will keep unwinding economic stimulus deployed during the financial crisis and continue raising interest rates despite uncertainty linked to the euro zone’s debt woes, Mr Mukherjee said on Friday.

One-month offshore non-deliverable forward contracts were quoted at 46.99/47.09, weaker than the onshore spot rate. In the currency futures market, the most traded near-month dollar-rupee contracts on NSE and MCX-SX ended at 46.98 on both exchanges, with the total traded volume on the two exchanges at around $5.2 billion.