MUMBAI: The Indian rupee dropped on Monday as demand for dollars from gold importers rose, while a choppy stock market gave no clear clues on the flow of capital.
The dollar's rise against major currencies also weighed on the rupee, traders said.
"There has been some gold related buying which pushed rupee to the weaker side," said a senior foreign exchange dealer at a co-operative bank. "Stocks are also not giving any clues to follow."
India is the world's biggest market for gold, with demand for jewellery usually rising during festivals and marriages. In 2010, the country had imported more than 900 tonnes of gold, according to the World Gold Council.
Spot gold hit a lifetime high on Monday, extending a record-breaking rally to its seventh consecutive session, buoyed by a weak dollar that languished around its three-year low amid increasing tension in the Middle East and North Africa.
Traders said pressure on the rupee could rise if oil refiners, which settle import payments toward the end of each month, stepped in.
"If we see demand from oil importers follow through, the rupee could slip to beyond 44.60. Otherwise we should see a range of 44.45-44.55," the dealer at the co-operative bank said.
Oil is India's biggest import item and refiners are the largest buyers of dollars in domestic forex market.
Brent crude futures rose above $124 a barrel on Monday after violence in Syria and Yemen escalated over the weekend, boosting fears that unrest may disrupt more oil supplies in the Middle East and North Africa.
The index of the dollar against six major currencies was up 0.15 percent at 74.103 points. It had been at 73.877 points when the rupee market closed last week.
The one-month onshore forward premium was at 25.50 basis points versus 26 basis points at last close. The three-month was at 82.25 basis points versus 83.50 and the one-year was at 316.25 basis points compared with 318.50.
The one-month offshore non-deliverable forward contracts were quoted at 44.73, weaker than the onshore spot rate.
In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange, the United Stock Exchange and the MCX-SX were all at 44.4875, with total volume at $4.12 billion.