Rupee falls 4 paise to close at 85.52 against US dollar

Mumbai: The rupee dropped 4 paise to 85.52 (provisional) against the US dollar in early trade on Monday, as dollar demand from importers, foreign fund outflows and a muted trend in domestic equities dented investor sentiments.

Forex traders said the rupee witnessed heavy volatility on Friday as well on Monday amid significant dollar demand linked to the expiry of December currency futures and maturing positions in the outstanding forwards.

At the interbank foreign exchange, the rupee opened on a weak note and witnessed an intra-day low of 85.59 and a high of 85.43 against the American currency. The local unit settled for the day at 85.52 (provisional), registering a fall of 4 paise over its previous close.

On Friday, the rupee registered the steepest fall in almost two years to hit its lifetime intra-day low of 85.80 before a likely central bank intervention helped recover some of its losses and settled 21 paise lower at a record low of 85.48 against the US dollar.

"We expect the rupee to trade with a negative bias on strength in the US dollar and month-end dollar demand from importers and oil marketing companies (OMCs). Elevated crude oil prices and FII outflows may also put pressure on the local currency," said Anuj Choudhary -- Research Analyst at Mirae Asset Sharekhan.

Choudhary added, "Any intervention by the Reserve Bank of India (RBI) may support rupee at lower levels. Traders may take cues from Chicago PMI and pending home sales data from the US. USD INR spot price is expected to trade in a range of 85.30 to 85.85." Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.07 per cent lower at 107.92.

Brent crude, the global oil benchmark, rose 0.08 per cent to USD 74.23 per barrel in futures trade.

In the domestic equity market, the 30-share BSE Sensex settled 450.94 points, or 0.57 per cent, down at 78,248.13 points, while the Nifty was down 168.50 points, or 0.71 per cent, to 23,644.90 points.

Foreign institutional investors (FIIs) offloaded Rs 1,323.29 crore in the capital markets on net basis on Friday, according to exchange data.

According to the Reserve Bank of India (RBI), the country's forex reserves dropped a further Rs 72,487 crore ($8.478 billion) to Rs 55,09,607 crore ($644.391 billion) for the week ended December 20. In the previous reporting week, the reserves had dropped Rs 17,000 crore ($1.988 billion) to a six-month low of Rs 55,83,009 crore ($652.869 billion).

The reserves have been declining for the last few weeks, and the drop has been attributed to revaluation along with forex market interventions by RBI to help reduce volatilities in the rupee.

The forex reserves had increased to an all-time high of Rs 60,26,837 crore ($704.885 billion) in end-September.