The rupee declined 38 paise or 0.46% against the dollar on Tuesday, marking its worst single-day percentage fall since February last year after the results of the Lok Sabha elections showed narrower majority for the National Democratic Alliance (NDA).
The local currency closed at 83.53 against the dollar, compared with 83.15 on Monday.
“Rupee depreciated today as domestic markets fell sharply amid uncertainty over the election results outcome. This may have also led to some sell-off by foreign investors,” said Anuj Choudhary, research analyst at Sharekhan by BNP Paribas.
“US dollar recovered from yesterday’s losses on weak euro which fell on disappointing employment data,” he added.
The dollar had declined on Monday after the US manufacturing activity unexpectedly declined, remaining in the contraction territory.
The sharp sell-off in the currency prompted the Reserve Bank of India (RBI) to intervene and sell dollars to limit the volatility in rupee.
“Some government banks sold dollars on behalf of the central bank,” head of treasury at a public sector bank told FE.
The central bank intervenes in the forex market to reduce any sharp volatility in the rupee. Instead of targeting any specific level for the rupee, the central bank focuses on lowering sharp fluctuations.
At the interbank foreign exchange market, the rupee opened weak at 83.25 and oscillated between a high of 83.23 and a low of 83.59 against the greenback during the session.
Apart from the massive sell-off in domestic equities, the dollar’s rise against other major currencies overseas also weighed on rupee’s performance.
The dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.17% higher at 104.25.
Experts expect the rupee to trade with a slight negative bias amid uncertainty over the outcome of election results.
“Dollar Index slightly bounced back from sub 104 levels, supported by substantial safe-haven inflows as most major equity markets are in the red,” Kunal Sodhani, vice-president- treasury, Shinhan Bank, told FE.
“For Dollar Index, the 55-day simple moving average comes at 105 which acts as first resistance. For dollar-rupee, 83.10 acts as a support, while 83.75 an important resistance,” he added.
Dollar demand from importers, after a 2% fall in crude oil prices, also weighed on the rupee.
Brent crude futures, the global oil benchmark, dropped 1.88% to $76.89 per barrel.
