Mumbai: The rupee gave up gains to close marginally stronger on Wednesday after domestic shares pared their rise from the highest level since February 2008 reached in early trade and closed lower on the day.
Gains in other Asian currencies and the dollar’s losses against major currencies prevented a further drop in the local unit, dealers said.
The partially convertible rupee closed at 46.69/70 per dollar, off the day’s high of 46.54 and 0.2% stronger than Tuesday’s closing of 46.7650/7750. It traded in a band of 46.54 to 46.72 during the session.
“The rupee gave up most gains tracking the equity markets, inflation didn’t have much impact,” said Ashtosh Raina, head of foreign exchange trading at HDFC Bank.
“The equity markets will be key tomorrow (on Thursday) as well. I think 46.80 should hold on the upside for the dollar-rupee, while I see the downside at 46.50,” he added.
The euro’s gains against the dollar helped the rupee, dealers said. The index of the dollar against six major currencies was down 0.1%.
The euro held near a two-month high against the dollar on Wednesday, supported by strong US corporate earnings and easing concerns about euro zone sovereign debt, which also helped push equities higher.
Slightly lower-than-expected inflation for June had little impact on the markets.
India’s annual headline inflation remained above 10% for the fifth straight month in June, cementing expectations the central bank will raise interest rates for a second time this month to contain surging prices.
Shares snapped a four-day winning streak and closed 0.3% lower after touching their highest level in nearly two-and-a-half years on Wednesday, taking cues from European markets which slipped in the red.
Foreign fund flows into and out of the stock market have a huge influence on the rupee’s direction. So far in 2010, foreign investors have bought a net $8 billion worth of shares. In 2009, record inflows of $17.5 billion had helped the rupee gain 4.7% on the year.
“Equities gave way to today’s rupee weakness. I am expecting the rupee to be weaker tomorrow as well. See it in a range of 46.55 to 46.90 tomorrow,” said Vikas Chittiprolu, a senior foreign exchange dealer with state-run Andhra Bank in Mumbai.
One-month offshore non-deliverable forward contracts were quoted at 46.93, weaker than the onshore spot rate.
In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange and MCX-SX closed at 46.79 and 46.80 respectively, with the total traded volume on the two exchanges at a low $3.6 billion.