MUMBAI: The rupee dropped to its lowest level in nearly two weeks on Monday, hurt by a sharp slide in domestic shares that raised concerns about more capital outflows while a broadly strong dollar also weighed.
At 10:40 a.m. (0510 GMT), the partially convertible rupee was at 47.23/24 per dollar, off a low of 47.47 -- its weakest since May 26 -- but still 0.8 per cent below its previous close of 46.84/85.
"If you throw a ball down with some force, it's bound to bounce a little before going down again," said Nitesh Kumar, an inter-bank dealer with Development Credit Bank, adding that the rupee was unlikely to appreciate much in the near term and one could look to buy dollars on all rebounds.
Indian shares dropped more than 2 per cent early, with financials leading the fall, as world stocks slid after weak US jobs data and Hungary's debt woes slammed investors and cut down risk appetite.
Foreign fund flows into and out of the stock market are a key driver for the rupee. So far in May and June, foreigners have sold about a net $2.1 billion worth of shares, but are still buyers of a net $4.6 billion in 2010.
"There is some good dollar selling by a large corporate helping the rupee," said Vikas Chittiprolu, a senior foreign exchange dealer with state-run Andhra Bank, predicting a range of 47.20-47.50 for the day.
Most Asian currencies dropped compared to the dollar. The index of the dollar against six major currencies was up 0.2 per cent. It was up about 0.4 per cent when the rupee started trading.
The euro fell broadly on Monday, hitting its lowest in more than four years against the dollar with investors increasingly nervous about more slides in the currency after a clear break below a support point on charts.
"I think we are yet to see the worst, the dollar-rupee should move above 48 and the Sensex below 14,000 points in the next one month," said a senior forex dealer with an European bank.
One-month offshore non-deliverable forward contracts were quoted at 47.46, weaker than the onshore spot rate.
In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange and MCX-SX were both at 47.3550, with the total traded volume on the two exchanges at about $1.6 billion.
