Mumbai: The rupee pulled back on Wednesday from 2-month lows hit in the previous session, supported by firmer regional peers but the upside is seen limited on concerns of cash dollar shortage and strong defence-related payments.
Outflows from the stock market this month have squeezed availability of cash dollars, and have triggered exporters to enter into buy-sell swaps in the forward dollar market.
“The dollar borowing cost is high for corporates because of cash dollar shortage. They are buying dollars in the spot market and selling in the forward, leading to a sharp fall in the forward rate and also spot rupee level recently,” said a dealer at a foreign bank.
At 10:37am, the one-month onshore forward premium was at 22 points, up from 21.75 on Monday when it had fallen from 28. The market was closed on Tuesday for a local holiday.
The partially convertible rupee was at 45.08/09, firmer than 45.155/165 at close on Monday when it had touched a 2-month-low of 45.18.
Traders expect the rupee to move in a 44.95 to 45.15 band, with dollar buying expected to emerge at around 44.90.
Shares were higher on firm Asian cues, but trading was choppy with rising interest rates keeping investors wary.
“We expect stocks to be steady today. In that sense rupee should not be volatile. But the overall mood is negative as FIIs have been pulling out from Asian equities in general,” said the head of foreign exchange trading at a foreign bank.
Foreign institutional investors (FIIs) have sold about $1.5 billion of Indian shares during 1-15 May, compared with a net inflow of around $1.6 billion in April.
The euro was steady against the dollar and the yen on Wednesday after recovering from recent lows, but wariness over sovereign debt problem in Europe made investors nervous about piling up euro positions.
The index of the dollar against six major currencies was down 0.32% at 75.158 points, and lower than 75.652 points when the local market closed on Monday.
The one-month offshore non-deliverable forward contracts were quoted at 45.32, 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 the United Stock Exchange were both at 45.1675, and on the MCX-SX at 45.17. Total volume was $1.9 billion.