Mumbai: Rupee regained most of its lost ground on Monday tracking a recovery in local shares, but still ended weaker amid a lack of major capital inflows and the dollar’s strength overseas.
With only a fortnight left for the year to end, dealers expect the rupee to move in a narrow range with a weakening bias on uncertainty surrounding capital inflows.
“In the short-term, the uncertainty over capital flows, high current account deficit (and) oil prices should keep the rupee weak,” said Ananth Narayan G, head of fixed income, currencies, commodities of south Asia at Standard Chartered Bank in Mumbai. “We don’t expect the rupee to run away on either side.”
Dealers expect the rupee to closely track the stock market for the rest of 2010.
The partially convertible rupee ended at Rs 45.1250/1350 per dollar, after dipping to the day’s low of Rs 45.2650 and weaker than Friday’s close of Rs 45.05/06.
Indian shares ended up 0.9%, after falling as much as nearly 1% earlier, helped by firm world equities, but trading remained choppy as widening corruption probes kept investor sentiment wary.
Foreign funds had dumped a net $629.09 million worth of shares in four sessions until last Thursday. However, total foreign fund inflows so far in 2010 still stand at $28.7 billion, on top of the $17.5 billion purchased last year.
Ananth Narayan expects the rupee to be around Rs 45.50 per dollar by end-December and at 44 by end-March.
Dealers expect the rupee to strengthen in the March quarter on expectations of strong capital inflows following the government’s divestment plans.
The government is expected to raise around $11.5 billion by diluting its stake in several state-run companies in the March quarter.
“We don’t expect huge inflows, but we expect flows which will be just adequate to bridge the current account deficit,” a dealer said.
Market will also remain ranged ahead of the central bank’s mid-quarter policy review on Thursday.
The euro slipped against the dollar on Monday, dogged by uncertainty about how euro zone countries will deal with their debt problems, while the US currency remained supported on rising US Treasury yields.
The index of the dollar against six major currencies was nearly unchanged at 0.003% at 80.067 points at close of the local forex market.
The onshore forward dollar premia rose on concerns of cash conditions tightening further due to advance tax payments this week.
The one-year forward dollar premium ended at 241.75 points, up from 239.25 points last Friday and the one-month premium was up at 28.75 points from the previous 26.25 points.
The one-month offshore non-deliverable forward contracts closed at Rs 45.44, weaker than the onshore spot rate, indicating a bearish near-term outlook.
In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange, MCX-SX and the United Stock Exchange ended at 45.2675, 45.2600 and 45.2750.
The total traded volume on the three exchanges including all available contracts was low at $4.5 billion.