With the dollar gaining ground against major currencies like the euro, the rupee is expected to further weaken in the short term. On Friday, the Indian currency weakened 1.05% to 46.7425 against the greenback at the close, and for the week on a whole it weakened by 1.22%. Analysts believe the downward trend in rupee will continue for a while.
Says Madhusudan Somani, head of foreign exchange trading at YES Bank, ?Going forward, one can expect some pressure on the rupee given a correction in the equity markets and an increase in the global risk aversion.?
Somani adds in the last few days, there has also been a lot of dollar demand from the oil companies ? which is leading to further weakness in rupee.
?We expect the rupee to touch 46.85 in the coming days,? observed Somani.
While rupee is expected to decline further, dealers do not believe RBI would intervene in the forex market to prevent the rupee from further depreciating.
?Rupee movement is more to do with the global factors and is temporary. Hence, we do not believe there would be a significant impact,? said C Chandrasekhar, senior VP at Mecklai Financial.
On Friday, the data released by the Reserve Bank of India (RBI) showed that the country?s foreign exchange reserves have fallen by $1.98 billion to $280.96 billion for the week ended January 29.
Foreign currency assets and gold reserves too observed a fall. While foreign currency assets fell by $1.72 billion to $256.4 billion, gold reserves fell by $236 million to $18.1 billion.
Dealers also believe that the subdued response to a $1.8 billion share sale by state-run NTPC, the country?s top power producer has also added to the rupee woes.
?The response to the NTPC issue has been disappointing. The dollar-rupee is not rising as there was an expectation that NTPC flow will come,? Somani said.
The ringgit has dropped 1% for the week to 3.4470 against the dollar, while the Singapore dollar has lost 1.3% to S$1.4233. The won slid 0.7% to 1,169.45 and the rupee declined 1.22% to 46.74%.
The US dollar was trading close to an eight-month low amid concerns that widening budget deficits will stifle Europe?s economic recovery.
With worsening public finances in Greece, Portugal and Spain, investors are also to seek safety in the dollar.
The economy in the U.S probably added jobs in January for the second time in three months, showing the pickup in growth is beginning to boost the labor market. Payrolls rose by 15,000 workers last month after falling by 85,000 in December.
While the short term looks bearish for the rupee, dealers believe the long term should be positive.
?The rupee weakness should not continue to be for too long, given the growth story is intact. It is true that the stock market may have run too far too soon and could be considered to be ?overvalued? territory. There is fair amount of evidence, going by recent data, of growth picking up ? in which case, we would be digressing from the global trend of lower growth and therefore a better investment destination for global fund managers. Therefore over the medium term, rupee should trade with a strong bias,? said R.K.Gurumurthy, head of trading, financial markets at ING Vysya Bank.