Mumbai: The rupee dropped from its highest in two weeks on Wednesday as refiners stepped up their customary month-end dollar purchases and a fall in domestic equities underpinned sentiment.
The partially convertible rupee ended at 46.75/76 per dollar, about 0.2% weaker than 46.67/68 at close on Tuesday. It touched an intraday high of 46.5550, its strongest since 14 July, according to Thomson Reuters data.
The index of the dollar against six major currencies was down 0.1% at the time of the local market’s close.
“I expect dollar buying from oil companies to continue through the week and see a range of 46.60 to 46.80 for the rupee against the dollar,” said a senior trader with a foreign bank.
Oil is India’s biggest import and refiners are the largest buyers of dollars in the local currency market with demand tending to peak at the end of each month when they are required to make payments.
Fall in share prices also hit sentiment, traders said. The Bombay Stock Exchange (BSE) index Sensex ended 0.67% lower. Foreign capital into the stock markets is a key driver of the rupee.
Foreign investors have bought a net $9.1 billion worth of shares so far in 2010, adding to record $17.5 billion inflow in 2009.
The Reserve Bank of India (RBI) raised interest rates more forcefully than expected on Tuesday to fight inflation that is on track to hit double digits for a sixth straight month, setting the stage for more policy tightening.
Dealers said the increase in key policy rates would widen the interest rate differential and attract more capital flows into India, helping the rupee in the medium to long term.
“There is a general sentiment of bullishness for the rupee, which is not simply because of the rate hikes, said Naveen Raghuvanshi, group associate vice president at Development Credit Bank in Mumbai.
“It is also due to the rating upgrade. I see the rupee appreciating to 46.0 to 46.30 by end of this quarter.”
Moody’s Investors Service on Monday raised the rating on India’s currency debt to one notch below investment grade at “Ba1” with a positive outlook, citing improving public finances due to recent government reforms.
One-month offshore non-deliverable forward contracts were quoted at 46.88, 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 ended at 46.96 on the two exchanges, with the total traded volume on both exchanges at $6 billion.