The rupee fell on Monday on the back of sustained dollar demand from oil importers, with traders also cautious a day before inflation data amid worries the economy could face a period of slowing growth but higher inflationary pressures.
The rupee last week posted its first gain in four weeks after newly appointed finance minister P. Chidambaram promised fiscal consolidation steps to boost the economy, but markets have yet to hear from the government.
In the near-term, the rupee will likely be impacted by headline inflation due on Tuesday. A Reuters poll expects wholesale prices to have crept up in July as poor monsoon rains drive up food prices higher, which would give the central bank less room to cut interest rates to revive a flagging economy.
The local currency will also be impacted by any developments out of the euro zone, as global investors continue to hope for European Central Bank action.
"We saw some firm demand from oil companies and corporates which pushed the rupee lower. If the inflation data comes in lower than estimates, it may push the rupee up," said Hari Chandramgathan, a forex dealer with Federal Bank.
Chandramgathan expects the rupee to fall to 55.80/90 to a dollar in the near term.
The partially convertible rupee closed at 55.34/35 per dollar as per the SBI closing rate versus its previous close of 55.28/29.
It fell to a low of 55.4750 in the session.
Dollar demand from oil importers came even as Brent crude prices rose above $114 per barrel on Monday to the highest in more than three months.
Oil-related companies account for the bulk of the daily dollar demand in the local forex market as India imports two-thirds of its crude requirements.
The one-month offshore non-deliverable forward contracts were trading at 55. 6 3, while the three-month was at 56. 2 7.
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, all closed at around 55.42 with the total traded volume at around $3 . 5 billion.