MUMBAI: The Indian rupee fell in its first session of 2012 on demand from oil importers, though losses were limited by a turnaround in domestic stocks and dollar-selling by foreign banks.
Volumes were light in the dollar-rupee market as many investors chose to stay away in the absence of trading in major overseas markets, which were closed for the new year holiday.
The rupee settled at 53.30/31 to the dollar, 0.4 per cent down from Friday's close of 53.08/09, after dipping to 53.34 in early trade.
“Nothing much can be read from today's market movement given the thin volumes and absence of overseas cues,” said Vikas Chittiprolu, a senior foreign exchange with Andhra Bank.
“Real action will return in the rupee when markets the world over resume normal trading and positions are initiated for the new year.”
Traders said the impact on the rupee of the government's decision on Sunday to allow foreigners to directly invest in local equities was muted.
“Though it is a right move in the long-term for supporting dollar inflows, right now when Indians themselves are not willing to touch equities expecting foreigners to push money into the same asset class is a bit tough,” said a dealer at a foreign bank.
The Sensex was among the world's worst-performing markets in 2011, falling 24.6 per cent, as high interest rates and slowing economic growth dented investor confidence. It ended 0.4 per cent stronger on Monday.
While weak macro fundamentals including a widening current account deficit and high inflation are weighing on the rupee, traders said any further weakness was likely to be limited.
“The rupee still looks like it could still weaken to a level of around 55,” said a senior foreign exchange trader with a large private sector bank.
“But the pace of the fall is unlikely to be sharp as (speculators) are out of the market and the central bank's intervention efficiency has improved sharply after the curbs on trading limits,” the trader said.
The central bank announced drastic cuts on banks' trading limits to curb speculation in the currency market after rupee hit a record low of 54.30 on December 15. In 2011, the rupee declined 15.8 per cent, its biggest annual fall since 2008.