Mumbai: The rupee strengthened on Tuesday, recovering from a one-week low touched in the previous session, aided by strong euro and Asian peers, but choppy domestic shares and dollar demand from oil refiners capped the gains.
The partially convertible rupee ended at 44.73/74 per dollar, 0.3% stronger from Monday’s close of 44.86/87.
“Daily (dollar) demand from oil companies pretty much matched the inflows today (Tuesday) and tomorrow opening cues will be from the movement in euro and Asian currencies,” Rohan Naik, head of foreign exchange trading at Standard Chartered Bank in Mumbai.
Intraday, the rupee moved in 44.7150-44.8400 range.
Traders expect the unit to stay in a narrow band and see subdued volumes until the central bank’s rate decision around noon on Thursday.
The Reserve Bank of India is expected to raise its policy interest rate by a total of 75 basis points for the rest of 2011, including a 25 basis point increase on Thursday, unchanged from forecasts in a May 3 poll, a Reuters poll found on Tuesday.
The euro was at $1.4429 at the local forex market close and the index of the dollar against six major currencies was down 0.11% at 74.430 points.
The euro and high-yielding currencies rose on Tuesday, boosted by improved risk appetite after Chinese data eased global growth concerns and taking a hike in Chinese banks’ reserve requirements in their stride.
Indian shares snapped a four-session decline and rose 0.2% after falling as much as 0.6% during trade, thanks to firm global markets, but the outlook remained downbeat after inflation came in well above expectations.
The wholesale price index (WPI) climbed 9.06% in May, with a sharp rise in manufacturing inflation from the previous month offsetting a slowdown in the rise of food and fuel prices and adding to the likelihood of a rate increase on Thursday.