The rupee slid to its weakest level in more than three months on Thursday, putting traders on alert for possible intervention from the Reserve Bank of India (RBI) as the outlook on the currency stays bleak.
The widening current account deficit, caused in large part by rising oil prices, slowing growth, and fears of a spillover from the festering euro zone debt crisis are seen looming large for the rupee.
The reduced expectations for further interest rate cuts from the RBI due to inflationary risks are also weighing on the rupee, traders said.
The central bank cut the repo rate by an aggressive 50 basis points this week.
"Overall outlook on the rupee stays negative. The main culprit remains oil," said S. Nagaraja, head of forex dealing at Al Rostamani International Exchange.
The rupee closed at 52.14/52.15 to the dollar, close to the intraday low of 52.165, a level last seen January10. It had closed at 51.78/79 on Monday.
Some traders expect the Reserve Bank of India to sell some dollars near those resistance levels.
"Even the hint of presence from RBI is enough to scare the market and help rupee recoup some losses temporarily," said a currency trader.
But some traders believe dollar sales by exporters looking to book profits may stem the losses in the rupee, reducing the need for central bank to act.
The one-month offshore non-deliverable forward contracts were at 52.13.
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 ended around 52.22, on a total volume of $4.3 billion.