The strong rally in the local stock market on expectations of some reversal in capital flows helped the rupee rise strongly in early trade but sustained demand of dollars later on weighed on the local unit, a senior dealer with a leading private sector bank said. Markets are concerned over two factors - dollar gaining against other currencies in the overseas markets, and FII outflows due to the weak sentiment in the equities markets.
The outlook remains bearish, and the rupee is expected to drop to Rs.46 per dollar in the coming days, a leading forex dealer said.
Data from the local market regulator showed overseas investors sold more Indian shares than they bought in five of the seven trading days this month. Demand for dollars from importers and capital outflows increased concern on India's current-account deficit widening.
The demand-supply balance and the fundamentals are against the rupee,'' said a leading forex dealer. There's no reason why this trend should not continue in the short term'', he said.
The local unit fell sharply as traders were actively participating in Non Deliverable Funds (NDF) market throughout the day, buying dollars from local market and selling in other markets as US Dollar surged sharply, dealers said.
The appreciating dollar and continuous downtrend in stock market resulted in considerable outflows that weighed the Indian unit to plunge to its lowest in about two years, Development Credit Bank's Associate Vice-President Navin Raghuvanshi said.
Demand remained high even as the intervention of Reserve Bank of India did not work well to prevent the rupee's sharp depreciation on Friday, he added.