The Hindu Business Line : Re slides to 44.53 on global market blips

IN what may have come as a temporary respite to exporters, uncertainties in the global financial markets along with apprehensions over the domestic political scenario have caused the rupee to close sharply weaker at 44.53 against the dollar.

Over the past couple of days the rupee, which was on a firm appreciation trend against the greenback buoyed by sustained dollar inflows, weakened due to aggressive dollar buying in the market by corporates and banks wanting to cover their short positions.

Since Tuesday, when the rupee opened at 44.14 levels ithas lost 39 paise.

The domestic currency has lost 93 paise in a month, since its levels at 43.60/65 seen on March 31.

The recent volatility in the rupee has raised doubts about whether rupee appreciation is sustainable in the medium term.

"The one way bet on rupee appreciation is getting eroded for various reasons. There has been some good economic data coming in from the US and the market is pricing in the chance of an early US Fed rate hike, as against the earlier expectation of a hike in September. If US interest rates go up then there will be a slowdown in the funds inflow to emerging economies like India," said Mr U. Venkatraman, Head Forex and Money Markets, IDBI Bank.

In fact, the data released by SEBI over the past three days shows that FII's have been withdrawing from the stock market.

This is another reason why the rupee is weakening, he said.

Analysts contend that until a few days back, the rupee was still considered to be substantially overvalued against the dollar, as per the Real Effective Exchange Rate. A correction was expected even as the one-year Libor increased by 20 basis points over last week.