Mumbai: The Indian rupee edged higher in late trade on Tuesday in line with the euro, which erased earlier losses, while gains in domestic shares and dollar inflows towards Power Grid Corp’s share sale also helped.
The partially convertible rupee closed at Rs 44.31/32 per dollar, 0.15% above the 44.38/39 close on Monday. The unit traded in the range of Rs 44.31 to Rs 44.4350 during the session.
“Today was mostly calm before the storm. Market is expecting a rate hike in China sometime soon, not sure when,” said Ashtosh Raina, head of foreign exchange trading at HDFC Bank.
China signalled its intention on Tuesday to crack down on excess cash sloshing around its financial system, by unexpectedly raising the yield on bills at a central bank auction and vowing to stem hot money inflows.
“There were huge inflows today, mostly Power Grid FPO related. There was lots of action in the forwards too,” HDFC’s Raina said.
Power Grid Corp of India, the world’s third-largest power transmission company, on Tuesday launched a share sale to raise up to $1.7 billion before it closes on Friday. The sale was fully covered on its first day, exchange data showed.
“There was good movement in the forwards as compared to the spot. After the central bank announcement there was good receiving seen in the forwards, pulling premiums off highs,” said Hari Chandramgathan, a foreign exchange dealer with Federal Bank.
“But custodial flows are keeping the near-term premiums at high levels for now. I expect premiums to soften by next week as liquidity is also likely to ease out,” he added.
The one-year onshore dollar premium closed at 249.75 points, off the day’s high of 255 points but still above its previous close of 246.50 points.
RBI on Tuesday reintroduced recent measures to provide liquidity comfort to banks, arising out of the frictional liquidity pressure.
Traders said late gains in shares also helped sentiment. Shares edged up 0.4 percent on Tuesday propped up by firm European equities, despite State Bank of India posting its biggest single-day loss in nine months a day after the top lender’s quarterly earnings missed forecasts.
Foreign funds have so far in 2010 bought shares worth a record $28.3 billion, in addition to last year’s $17.5 billion. The rupee has gained 5 percent so far this year.
The dollar’s index against six majors was down 0.3% when the rupee market closed. It had been up as much as 0.45% earlier.
The euro erased early losses against the dollar on Tuesday as Asian accounts bought on dips, but the single currency remained pressured on concerns about peripheral euro zone debt.
One-month offshore non-deliverable forward contracts were at Rs 44.56, 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 44.5050, 44.5025 and 44.5050 respectively, with the total traded volume on the three exchanges at a low $5.3 billion.