BackRupee drops on dollar rise against major units
Rupee drops on dollar rise against major units
PremiumMumbai: The rupee weakened on Tuesday weighed by sharp gains in the dollar against major currencies, the euro in particular which hovered near a one-year low, and tracking a late drop in the domestic share market.
The partially convertible rupee closed at 44.61/62 per dollar, 0.2% weaker than its 44.5150/5250 close on Monday.
“There was a lot of unwinding of short dollar positions today, which weighed on the rupee," said Ashtosh Raina, head of foreign exchange trading at HDFC Bank.
Dealers said expectations of inflows from Essar Energy’s London initial public offering (IPO) that closed last week and towards third-generation (3G) mobile spectrum auction prevented a sharp fall in the rupee.
Essar Energy raised $1.95 billion via its London IPO last week and some of the proceeds may be brought into India, dealers said.
Bids for one set of nationwide 3G mobile spectrum licences in India reached Rs103.48 billion ($2.33 billion), or nearly thrice the base price, on the 20th day of an auction, government data showed on Monday.
“The dollar’s gains versus majors hurt the rupee in the latter part of the session. Equities also turned down quite a bit," a senior dealer with a private bank said.
Indian shares fell 1.4% on Tuesday to their lowest close in eight weeks, dragged by metals makers as worries China’s robust appetite may falter sent prices sliding in London.
Capital flows into stocks are a key driver for the rupee. So far in 2010, foreign funds have invested a net $6.5 billion in domestic shares, adding to record inflows of $17.5 billion in 2009.
“There was some inward flows with a foreign bank which prevented further fall in the rupee, nobody really wants to buy dollars as they don’t want to go long with so much of flows lined up," said Madhusudan Somani, head of forex trading at Yes Bank.
“I think we could see the rupee at 44.85 level in the next few days. But some flows related to 3G and debt inflows are coming in, plus there is some custodial selling at higher levels," he added.
The index of the dollar against six majors was up 0.5%. The euro on Tuesday matched the one-year low against the dollar hit last week on concerns about Greek debt problems and fears of possible contagion to other vulnerable euro zone countries.
One-month offshore non-deliverable forward contracts were quoted at 44.73, 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 both closed at 44.7050, with the total traded volume on the two exchanges at about $6.7 billion.
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