The rupee fell on Monday, in tandem with weakness in local shares as the economy is expected to slow more than earlier estimated and the dollar continued to strengthen globally, reinforcing its status as a safe-haven currency.
At 10:40 a.m. (0510 GMT), the rupee was at 52.76/77 to the dollar, weaker than Friday's close of 52.7150/7250 and most traders expect the unit in a range of 52.60 to 52.90 for the session.
Global strength for the dollar is the main worry for rupee as of now, said a foreign exchange trader at a state-owned bank.
The euro hit a 16-month low versus the dollar and an 11-year trough against the yen on Monday following a slew of negative news from the euro zone over the weekend.
Prime Minister Manmohan Singh on Sunday said the economy would likely grow about 7 percent this fiscal year, lower than a revised forecast of about 7.5 percent growth issued by his government last month.
Singh's estimate has reinforced growing fears that a slowing global economy and a series of rate hikes by the Reserve Bank of India since March 2010 has hurt the economy more than expected.
We now have to watch the flows to domestic debt market, the trader added, hinting that such inflows could help reverse some of the rupee's losses. On Friday, the rupee had closed the week with a 0.7 percent gain, helped by foreign investors rushing to meet a deadline to buy local debt.
For a story on the enhanced debt limits for FIIs, see [ID:nI8E7MB015]. Foreign funds have to use up the limits to buy government debt by mid-January, which will otherwise expire.
Net inflows into debt so far in January, at $1.03 billion has far outstripped equity related flows which stands at $190 million, data from the Securities & Exchange Board of India showed.
But, despite negative factors like a widening trade and fiscal deficit alongside a still high inflation rate, traders and analysts expect the rupee to rebound in the coming months of 2012.
We expect FX risks to recede as 2012 progresses, with sluggish Indian rupee performance in early 2012 giving way to strong gains in H2 (second half). We forecast USD-INR at 48.50 by the year-end, said Standard Chartered in a research note on Friday.
The rupee dropped 16 percent in 2011 to hit a record low of 54.30 on December 15.
Expected monetary easing from the central bank, a fall in non-oil imports due to lower economic growth and the already announced steps to boost dollar inflows will bolster the rupee, Standard Chartered said in the note.
One-month offshore non-deliverable forward contracts were quoted at 53.07, indicating more weakness in the short-term in the onshore spot rate.
In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange were all around 52.97 on total volume of $511 million.