The rupee gave up early gains and skidded to its lowest in more than two months on Monday, pressured by oil payments and subdued shares.
India imports about 80 per cent of the oil the country consumes and refiners are the biggest buyers of dollars in the currency market, with their demand tending to peak towards the close of each month when they make payments.
Tension between Iran and United States is likely keep demand for dollars strong as Indian companies would look to clear import dues as early as possible before any financial sanctions are imposed on Iran's customers, traders said.
New Delhi, which buys nearly 12 per cent of its oil needs from Tehran, could be exempted from tighter U.S. sanctions, the International Energy Agency's executive director told Reuters.
At 10:54 a.m. (0524 GMT), the rupee was at 51.27/28 to the dollar, weaker than last week's close of 51.17/18. It weakened as far as 51.30, a level last seen on January 16 according to Thomson Reuters data.
The drop was halted on expectation the central bank would intervene to smoothen volatility. The Reserve Bank of India is suspected to have sold dollar on two occasions last week to shore up the currency.
"Outlook on the rupee seems a bit bearish as month-end dollar demand from oil companies will be strong," said a currency trader with a brokerage. "On top of this equities too look weak."
The main share index was down more than 1 per cent on worries about growth and stalled reforms encouraged market players to roll over short positions before the expiry of monthly derivatives on Thursday.
Technical charts too point towards possibility of more pressure on the rupee.
The one-month offshore non-deliverable forward contracts were at 51.84.
In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange were all around 51.31, on a total volume of $1.29 billion.
Copyright Thomson Reuters 2012
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