Re falls on commodity imports speculation

Written by Agencies | Updated: Jul 30 2010, 04:30am hrs
Rupee fell from near a one-week high on speculation local companies stepped up imports to take advantage of a decline in global commodity prices, boosting demand for foreign exchange.

The currency weakened after gold slid 5.7% from the June 21 record of $1,265.30 an ounce and crude oil slumped 10.3% from a 19-month high of $87.15 per barrel reached May 3. India is the worlds biggest buyer of bullion and imports almost three-quarters of the oil it uses. The rupee also retreated as the Bombay Stock Exchanges Sensitive Index lost 0.7%.

The rupee has been pulled under by some commodity-related dollar demand, particularly driven by gold imports, said Sudarshan Bhatt, chief currency trader at Corporation Bank. The weak trend in stocks isnt helping either.

The currency declined 0.2% to 46.765 per dollar. On Tuesday, it strengthened 0.8%, the most in five weeks, and touched a one-week high of 46.64 as the central bank raised its benchmark reverse-repurchase rate by half a percentage point to 4.5%. All 20 economists surveyed by Bloomberg predicted a quarter-point increase.

Offshore forwards contracts indicated the rupee will trade at 47.35 per dollar in three months, compared with expectations for a rate of 47.21 on Wednesday. Forwards are agreements to buy or sell assets at a set price and date and offshore contracts are non-deliverable, meaning they are settled in dollars.

The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials fell 0.8% on Tuesday, retreating from the highest level since May 4.