Mumbai: The rupee trimmed losses on Monday as the stock market pulled back from an early slide and the dollar eased against major currencies overseas.
The partially convertible rupee closed at 46.37/38 per dollar after hitting 46.44, but half a percent weaker than its previous close of 46.16/17.
“The rupee was mainly tracking the local sharemarket today,” said Ashtosh Raina, head of foreign exchange trading, at HDFC Bank.
“The near-term trend has changed because of the global dollar strength and weak equity markets, but the long-term trend is still bullish for the rupee.”
Markets erased sharp early losses and ended flat, after robust sales data from automakers raised expectations for a stronger outlook and helped soften the blow from weak global equities.
Foreign fund investments in domestic shares are a key driver for the stocks and the rupee. Foreign investors have been net sellers of $2 billion worth of stocks in 11 of the last 12 trading sessions, taking net outflows in 2010 to about $100 million.
Last year record inflows of $17.5 billion had helped the rupee gain 12.2% from its record low of 52.2 hit in March 2008. The rupee gained 4.7% on year in 2009.
India’s manufacturing in January grew at its fastest pace in almost 1-“ years, boosted by a sharp rise in new export orders that underpin a recovery in the industrial sector, a survey showed.
Stronger-than-expected euro zone PMI data pushed the euro higher on Monday, but it hovered close to seven-month low on concerns over the indebtedness of some euro zone countries.
The dollar steadied but stayed close to a six-month high versus a currency basket after Friday’s stronger-than-forecast gross domestic product data suggested the United States was recovering faster than the euro zone and Japan.
The Reserve Bank of India (RBI) on Friday lifted banks’ cash reserve ratio, or the proportion of deposits that banks must keep with the apex bank as cash, by a higher-than-expected 75 basis points but held rates steady.
The increase in reserve requirements would help the rupee in the medium term dealers said.
One-month offshore non-deliverable forward contracts were quoted at 46.40/50, weaker than the onshore spot closing rate.
In the currency futures market, the most traded near-month contracts on the National Stock Exchange and MCX-SX both closed at 46.44.