High volatility in stock markets witnessed during the week that goes by led to a further depreciation of the Indian rupee. Aggressive selling by the foreign investors triggered heavy outflows from the country, a key negative for rupee.
The Indian rupee closed at 66.47 against the US dollar on Friday, paring some losses from an intra-day low 66.52. Overall, the rupee depreciated by 16 paise since the beginning of the week.
"The rupee followed the downward trajectory of the equities markets. The value was eroded dure to the demand by importers and the Reserve Bank's attempts at defend the currency," Hiren Sharma, senior vice-president, currency advisory at Anand Rathi Financial Services, told IANS.
The rupee losses were mainly due to a sharp sell-off in domestic equity markets, as a slew of factors dragged the stock indices down.
The BSE Sensex plunged by 562 points or 2.2% on Friday to close at 25,201 points, posting a 13-month low. Overall, the Sensex lost more than 1,000 points in the week.
Weak gross domestic product (GDP) in the first quarter of the current financial year, concerns on China slowdown, rising crude oil prices and rising expectations over the interest rate hike by the US central bank were the major negatives that hit the markets during the week.
On the domestic front, the GDP growth of 7% in the first quarter was well below market expectations. A data on Monday showed that manufacturing activity in China fell to three-year low in August, intensifying worries over the growth in the world's second largest economy.
The sell-off was also triggered by renewed expectations of an interest rate hike by the US central bank in September. Besides, a sharp rebound in global crude oil prices pressurised the stock markets that led to a fall in rupee.
"The steep rise of around $10 per barrel in 2-3 day's time is a cause of worry. Especially given the fact that the rupee is falling," Anand James, co-head, technical research, Geojit BNP Paribas.