Mumbai: The rupee halted its six-day rally on Monday, following its biggest weekly gain in 13 years, but traders were keenly watching the local share market for cues on fund flows.
At 10:20am, the partially convertible rupee was at Rs47.40/41 per dollar, 0.6% below its Friday’s close of Rs47.11/12. It rose as high as 46.90 during trade on Friday, its highest since 19 December, 2008.
“With month-end dollar demand around the corner, there is some profit-taking in the market after the sharp rally last week,” a senior dealer at a private bank said.
“Today it is likely to be in a Rs47.30-47.50 range. I reckon it would go back to Rs47.60-80 levels first, before we can see it heading back to sub-47 levels, as the Rs49.40 to 46.90 rally looks a bit overdone and needs some correction,” he added.
The rupee rose 4.9% last week after the Congress-led coalition’s resounding election win raised expectations for economic reforms and greater foreign investment.
Demand for US dollars generally rises at the end of each month when importers and refiners buy dollars to make payments for their imports, weakening the local unit in the spot market.
Dealers said some gains in the dollar after the sharp fall to five-month lows last week, were also weighing on the rupee. The dollar index, a gauge of the US unit’s performance against majors, was up 0.1%.
Indian shares were choppy in early trade, as investors took profits on a rally of more than 70% since early March and euphoria cooled for pro-market reforms from the government.
However foreigners are net buyers of over $3 billion worth of local shares this year, after net sales of over $13 billion in 2008. These inflows have been a key factor helping the rupee rise over 10 percent from its record low of 52.2 hit in early March.
One-month offshore non-deliverable forward contracts were quoted at Rs47.44/54, a little weaker compared to the onshore spot rate.