On Monday, the rupee showed high volatility against the US dollar on account of good demand from importers and a sharp fall in the equity share market which weakened the sentiment.
The partially convertible rupee opened at an intra-day high of 42.15, after which the market saw heavy demand for dollars, which led to depreciation in the local currency. It closed at 42.40 against the dollar, as compared with 42.46 on Friday.
?The RBI?s decision of relaxing the ECB norms and providing more liquidity to state-run oil companies helped rupee to strengthen against the dollar during the early trade,? said Arun Kaul, treasurer at Punjab National Bank. However, this rise was short-lived as demand for dollars from importers and banks emerged coupled with losses in the stock market, pulled the rupee down, explained Kaul. ?Thus the sentiment turned bearish after the opening,? he added.
The stock market fell 2.15%, its biggest single-day fall since early April, after a delay in an expected agreement to raise state-set fuel prices sparked market talk there was a rift within the ruling coalition.
Political uncertainties added to existing concerns about the impact of record oil prices on the trade deficit, rising inflation and slowing growth, and net foreign selling of more than $3.9 billion of shares in 2008.
Dealers expect this volatility to continue and expect rupee to remain bearish over the next 2-3 months.
?The underlying sentiment for rupee is very bearish. Demand for dollars will continue in the next 2-3 months. However, this volatility in rupee is bound to remain,? said a private bank dealer.