Mumbai: The rupee fell for the second straight session on Tuesday, but bounced off the day’s low on dollar sales by exporters taking advantage of the local unit’s sharp drop this week and on broad short-covering.
The partially convertible rupee closed at 44.48/49 per dollar, off the day’s low of 44.68, but still a touch lower than its 44.47/48 close on Monday. It had hit an intra-day high of 44.18 on Monday, its strongest since 8 September 2008.
Financial markets will be closed on Wednesday for a holiday.
“The yuan effect has faded, at least for the time being. The IIP (Index of Industrial Production) data, inflation and expected rate hike coupled with the stock market performance, have taken the centrestage leading to the weakening of the rupee,” said V.Kumar, head of foreign exchange trading at State Bank of Travancore.
“The trimming of losses was possibly due to the cross currencies action and export booking. The overall trend is bullish for the rupee and any uptick is likely to be sold. If the strong 44.20 support is broken, it may lead to 43.70,” Kumar said.
The industrial output in March was marginally below forecasts while last month’s inflation data, due to be released on Thursday, would be closely watched.
Dealers had built short dollar positions late last week as speculation that Beijing was close to allowing the yuan to rise had intensified.
However, the absence of such a move over the weekend prompted banks to cut these short dollar positions on Monday and Tuesday.
“Forwards are on a bull run. The market is discounting a 25 basis points hike in both the repo and reverse repo rates and a 50 basis point hike in the cash reserve ratio,” said Nitesh Kumar, an inter-bank dealer with Development Credit Bank.
The one-year onshore dollar premium rose to 150.75 points, its highest since late October, against its 144.25 points close on Monday.
The central bank will release its annual monetary policy on 20 April, where it is expected to hike both its key short-term borrowing and lending rates by at least 25 basis points each.
Indian shares dropped 0.2% on Tuesday, tracking weak global equities, but Infosys Technologies bucked the trend and rose nearly 4% in the day on bullish annual revenue growth forecast.
Foreign fund flows into and out of the stock market are a key determinant of the rupee’s fortunes. So far in 2010, foreigners have bought a net $5.3 billion worth of shares.
Traders said though inflows related to the government’s multi-billion dollar 3G auction were still small, yet they were watching the event closely to gauge the full extent.
One-month offshore non-deliverable forward contracts were quoted at 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 and MCX-SX closed at 44.50 and 44.5450 respectively, with the total traded volume on the two exchanges at a high $8.5 billion.