Mumbai: The rupee trimmed gains from a near six-month high on Wednesday, tracking losses in the euro and weighed by some dollar demand from importers, but buoyant local shares helped the local unit close stronger on the day.
The partially convertible rupee closed at 44.49/50 per dollar, off a high of 44.25 reached in early deals, its strongest since 15 April and 0.4% stronger than Tuesday’s close of 44.69/70.
“Initially, foreign banks were selling dollars but all of it got absorbed by oil companies and state-run banks. Later, when the euro weakened, we saw some dollar buying in the local market too,” said Hari Chandramgathan, a forex dealer at Federal Bank.
“I do not see the rupee strengthening above 44.25 levels with the downside seen at 44.95-45.00 levels.”
Oil is India’s largest import and refiners are the biggest buyers of dollars in the domestic currency market.
The euro fell to a session-low versus the dollar and the yen on Wednesday after Fitch downgraded Ireland to A+ from AA-. The index of the dollar against six major currencies was up 0.1% when the rupee market closed.
“Rupee’s gains were mostly led by capital inflows. Later there was some profit-booking in stocks, which saw the rupee come off highs as well,” said Ashutosh Khajuria, head of treasury at IDBI Bank.
With no sign of abatement in foreign fund inflows and with firm world equities lending a hand, Indian shares gained on Wednesday, for the fourth session in five, led by Reliance Industries.
“Capital inflows may peak in about a month’s time and then the high trade deficit may weigh on the rupee,” Khajuria said.
Foreign funds have bought a record $20.3 billion of Indian equities so far this year, with more than one-third of that flowing in since the start of September.
India’s August trade deficit widened to a 23-month high and the trade secretary raised his projection for the full-year figure, but said the bulging deficit was not yet a problem and could be financed.
“There was a lot of importer-related dollar demand in the market today, both big and small. I do not see the rupee breaking 44.20 levels this week,” said Vikas Chittiprolu, a senior foreign exchange dealer with state-run Andhra Bank.
Some dealers suspected the Reserve Bank of India (RBI) may have bought dollars in the market around 44.25 levels, but sources in the central bank said current conditions did not warrant intervention.
RBI usually buys or sells dollars in the market via state-run banks to prevent excessive volatility but it does not target any particular level on the rupee.
India’s central bank is considering measures to deal with an influx of foreign fund flows, a Reserve Bank of India deputy governor had said on Tuesday.
One-month offshore non-deliverable forward contracts were quoted at 44.61, weaker than the onshore spot rate.
In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange, MCX-SX and United Stock Exchange closed at 44.68, 44.6725 and 44.6875 respectively, with the total traded volume on the three exchanges at a low $7.4 billion.