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The Indian rupee fell against the dollar on Wednesday following weakness in global stock markets on worries that the global economic slowdown will hurt corporate earnings.

At 9:02, the rupee was at 55.72 to the dollar, lower by 0.6 per cent or 33 paise from Tuesday’s close of 55.39. It had rallied against the dollar on Tuesday, snapping a four-session losing streak, buoyed by strong gains in local stocks and dollar sales by exporters.

Asian shares inched lower on Wednesday following the trend in US stock markets. The stocks were hit by worries that a deteriorating global economy has taken a toll on profit growth as prospects for corporate earnings seem dismal. The market is also unconvinced that the euro zone can decisively bring down struggling member states’ borrowing costs even after yields pulled back.

Global risk factors as well as domestic data like May IIP are now likely to impact rupee movement ahead of RBI’s monetary policy announcement on July 31. India depends on capital inflows to bridge its current account gap, and the high-yielding currency is thus sensitive to global risk sentiment, especially given the country runs a wide current account deficit and is seeing slowing growth.

According to Jamal Mecklai, CEO of Mecklai Financial, the rupee is not likely to touch 50 per dollar level any time soon. Ratings agency Fitch too warned that the rupee is not likely to appreciate in the short term until global risk aversion subsides; but fall further if global risk aversion worsens or the domestic fiscal position deteriorates. It also said that if the depreciation persists, it might affect the credit ratings or outlook of some companies. (Read More)

The rupee fell sharply in June, mirroring declines in May, and went on to hit its lowest level of 57.33 on June 22. It failed to gain traction despite measures announced by the central bank on India to bolster the currency, including raising the investment limits on government bonds for foreign investors. It had also asked oil companies to get 50 per cent of their dollar needs from state-owned banks.

However, it strengthened over 5 per cent by June-end on the back of clarity on taxation rule – GAAR, dollar sales by investors along with a positive outlook for Europe after the leaders agreed on a deal for tighter fiscal union in the longer term.

The domestic worries, compiled with global risk aversion on account of the Euro crisis had been weighing on the rupee, which had fallen close to 7 per cent this year, making it the worst performing currency.