Experts believe it can touch 63 against the dollar which has been strengthening against a basket of currencies
On Wednesday the rupee ended weak for the third straight trading session to end near a one-month low at 62.26 compared with previous close of 62.20 per dollar. The rupee had opened at 62.27 and during intra-day trades it touched low of 62.30. The rupee had ended at 62.33 on January 9.
"Corporates are booking their import exposures ahead of the budget. The trend for the rupee is towards weakening due to which whatever open position they have, they have to hedge that. Going forward even government debt payments may come up due to which the rupee can breach the 62.40-62.50 levels," said Sandeep Gonsalves, forex consultant and dealer, Mecklai & Mecklai.
There is an expectations in the currency market that sometime in 2015 the US Fed may start hiking interest rates as the US economy is showing signs of recovery as a result the dollar has been strengthening against a basket of global currencies.
"The importers will buy to cover their exposures as the dollar stays strong. We can see the dollar demand from importers increasing going forward ahead of the budget. The volatility can be high post Budget. The rupee is seen trading in the range of 61.70 to 63 till the Budget. The bias is towards 63," said Anindya Banerjee, currency analyst, Kotak Securities.
The other factor which is leading to weakness in the rupee is that the Reserve Bank of India (RBI) has been mopping up dollar flows attracted by domestic markets. RBI has been doing so because it is believed that when the US starts hiking interest rates, the foreign investors will start pulling out from emerging markets like India as a result of which the rupee may be vulnerable against the dollar.
Latest RBI data shows that foreign exchange reserves rose to an all-time high of $ 327.88 billion for the week ending January 30, 2015.
Raising concerns on the unhedged foreign exchange exposure of corporates, RBI deputy governor HR Khan urged corporates on Tueasday to take care of the potential risks that are associated with their exposures.
"Regulators certainly will not like to micro manage what otherwise is a commercial decision, corporates need to take care of the potential risks embedded in their unhedged currency exposures since they might incur significant costs due to unexpected and sudden exchange rate movements," Khan said.