By Vicky Kapur

Continuing its slide in the month of May, the Indian rupee slipped an eight months low Thursday morning, declining to Rs55.87 against the US dollar (Rs15.21 against the dollar-pegged UAE dirham) at 8.20am UAE time (4.20GMT).

Backed by the heightened possibility of the US Federal Reserve slowing its bond purchase program, the US dollar strengthened against all major currencies yesterday, and the beleaguered Indian rupee took a further drumming this morning when currency markets opened for trading at 9am India time (7.30am UAE).

The US dollar gained against all major currencies after Fed chairman Ben Bernanke’s testimony indicated that the Fed may gradually taper off bond buying. This is likely to add further pressure on the rupee, believe analysts.

The rupee is now down about 1.7 per cent year-to-date, which isn’t much considering it dropped by almost 22 per cent over the span of previous two years (2011 and 2012).

Analysts maintain that the rupee has lost ground over the past weeks on sustained dollar demand from importers, and add that if equities continue to remain sluggish, the rupee rout could continue for another couple of days.

“The Indian rupee weakened further during the week gone by as the dollar’s strength against global currencies and demand from oil and gold importers offset gains in domestic shares that have been driven by strong foreign flows,” Subash Gangadharan, analyst with HDFC Securities, the investment brokerage arm of HDFC Bank, wrote in his weekly currency update published on May 20, 2013.

“Concerns over the wide current account deficit too have been weighing on the rupee,” Gangadharan highlighted, pointing out that the rupee had declined 0.13 per cent against the US dollar (and other dollar-linked currencies such as the UAE dirham) in the week ended May 17, 2013.

In fact, the rupee has weakened against the US dollar and the dollar-denominated UAE dirham (as well as other USD-linked Gulf currencies) for three consecutive weeks this month, declining by about 4.1 per cent in 22 days of May so far.

The rupee last saw lower levels than these about eight months ago, when it made a low of Rs15.22 against the UAE dirham on September 6, 2012. Before that, the Indian rupee made its famous lifetime low of Rs15.55 against the UAE dirham on June 23, 2012, but within three-and-a-half months, made a remarkable recovery to Rs14.08 on October 5, 2012.

Since then, of course, it has lost ground and fallen by more than 8 per cent in less than eight months.

HDFC Securities’ Gangadharan maintains that despite holding its own during the first few months of this year, the rupee could see a pummelling during the remainder of 2013.

“It is a dollar story this year as the US labour and housing markets appear to be recovering. And while we do expect the Fed to be cautious in withdrawing stimulus, the economic recovery should drive the dollar higher,” he wrote in his latest weekly currency report.

“Coming to the Indian markets, while foreign fund inflows have been supporting the rupee, the rupee is likely to remain under pressure given the increase in imports, especially gold and the upward movement in the global crude oil prices,” he said.

“Technically, the USD/INR pair remains in an uptrend after bouncing from the strong supports of 53.6. We expect the pair to move up further this week,” he said.

(Home page image courtesy Shutterstock)

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