Mumbai: The rupee lost steam on Tuesday after a four-day rally, dropping 0.5% as the US dollar strengthened and local shares surrendered most of their early gains.
The partially convertible rupee closed at Rs50.73/74 per dollar, off an early high of Rs50.20, and 0.5% below its previous close of Rs50.46/47.
Last week the rupee rose 1.7%, its biggest rise since the week to 19 December. At the close, it was up 2.9% from a record low of Rs52.20 set in early March.
“The rupee dropped due to good corporate dollar demand and some month-end oil demand. The afternoon move was largely tracking the dollar’s rise against the majors,” said V. Kumar, chief dealer with State Bank of Travancore.
“I don’t see the rupee breaking the 50 mark in the next couple of days, it is likely to stay in a 50 to 51.30 band for the next week,” he added.
The dollar’s trade-weighted value rose on improving sentiment toward US assets, halting a fall triggered by the Federal Reserve’s announcement that its balance sheet expansion of over $1 trillion would include purchases of government debt.
Indian shares pared gains of nearly 3% to end up 0.5%, and the loss of momentum helped check the rupee.
But the stock market has risen more than 16% since 9 March, when it hit its lowest close in more than three years, and that has helped the rupee’s recovery from its record low.
Gains in shares generally boost the rupee as they bring in foreign funds. Foreign investors have bought a net $372 million of shares over the seven sessions to Monday, trimming their net sales in 2009 to about $1.9 billion.
Dealers said a sharp rally in the rupee was unlikely ahead of the general elections in April and May due to lingering political uncertainties, with slowing economic growth also hurting.
Early forecasts indicate a fractured mandate with neither of the country’s two main political parties likely to get a majority in parliament.
“While day-to-day demand-supply will continue to be negative given the usual month-end demand for dollars, exporters selling forward dollars will be critical,” J. Moses Harding, head of global markets at IndusInd Bank said.
“We also need to watch out for the Reserve Bank of India close to 50 to limit gains beyond there,” he added.