Investors have been waiting for action from the government on a host of issues such as amending contentious taxation proposals on overseas investors and measures to attract foreign direct investments.
Both are seen key to narrow India's record annualised current account deficit. But opposition lawmakers have stalled parliament over the state auditor's report over coal block allocations to private companies, preventing passage of any legislation.
"The parliament deadlock is worrisome from a long-term India sentiment basis. But I think the current domestic scenario has however been largely discounted for now. The rupee will move in a 55-56 band to a dollar taking cues from the euro/dollar moves," said Naveen Mathur, associate director for currencies and commodities at Angel Broking.
The partially convertible rupee closed at 55.69/70 per dollar as per the SBI closing rate, compared to its 55.4950/5050 close on Friday, marking its second consecutive fall and its lowest close since Aug. 20.
Trading volumes were muted as London markets were closed for a public holiday. Dealers said month-end oil demand from refiners kept the dollar bid, with some short-covering pushing the rupee lower in late trading.
Global risk factors will also be key, with investors keeping a close eye on euro zone developments and to Federal Reserve Chairman Ben Bernanke's speech at Jackson Hole on Friday. Onshore forward premiums rose with importer paying pushing up the annualised premium rate to 6.12 percent from 6.06 percent previously.
The one-month offshore non-deliverable forward contracts were quoted at 55.99 while the three-month was at 56.64. 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 55.6850 , with a total traded volume at $3.5 billion.
Copyright @ Thomson Reuters 2012