In volatile trade, the rupee on Monday touched a one-week high of 55.20 but late dollar demand from importers and foreign funds pulled it 11 paise down to close at 55.65 against the US currency, cutting short a two-day winning string.
At the Interbank Foreign Exchange market, the domestic currency resumed at 55.50 from last Friday's close of 55.54 and improved further to a high of 55.20 in morning deals on continued dollar selling by exporters.
However, the currency later fell back to a low of 55.67 on heavy dollar demand from importers and foreign funds, before concluding at 55.65.
According to data from stock exchanges, foreign institutional investors sold stocks worth Rs 637.14 crore (Rs 6.37 billion) on Monday, putting pressure on the domestic currency that had bounced back after hitting a record low of 56.52 last Thursday.
Forex dealers said sustained capital outflows and expectations of more after looking at the current uncertain stock markets could weigh on the rupee in the days ahead.
The dollar index, which was up in early session, was trading down by 0.05 per cent against a basket of currencies while the front-month July Brent crude oil contract trading on London's ICE futures exchange was down 1.7 per cent at $96.82 a barrel.
Meanwhile, the BSE Sensex, which was down by over 216 points intra-day, later recouped early losses and ended 23.24 points higher.
According to Abhishek Goenka, CEO,
Driven by a combination of deteriorating global risk sentiment and weak domestic fundamentals, the rupee lost 6.34 per cent in May, the worst month-on-month performance since November 2011.
"Earlier, we saw the rupee correcting and went below 56 levels in spite of the negative news coming from the local and international markets.
The correction till 55 looks possible, but as the international factors goes worse with up-coming IIP and inflation figures which are not expected to be good we can see again pressure building up on rupee," Goenka said.
The premium for the forward dollar today ended weak on fresh receivings by exporters.
The benchmark six-month forward dollar premium payable in October moved down to 127-129 paise from last weekend's close of 134-136 paise.
The far-forward contracts maturing in April also dropped to 243-245 from 254-256 paise previously.
The RBI fixed the reference rate for the US dollar at 55.5155 and for euro at 68.8630.
The rupee also turned negative to settle at 85.51 against the pound sterling from 85.09 last Friday and also declined to 69.17 per euro from 68.45.
The currency softened against the Japanese yen to 71.27 per 100 yen from last close of 71.11.
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