Mumbai: The Rupee flip-flopped tailing the local stock market before closing stronger on Wednesday amid mixed factors including sharply low November industrial output data, rate hike worries, capital inflows and importer dollar demand.
“There are no other triggers now apart from the stock market for the rupee. We can’t see too much of (dollar) inflows, we expect stocks to come under pressure again,” said Ashtosh Raina, head of forex trading at HDFC Bank in Mumbai.
The partially convertible rupee ended at Rs 45.13/14 per dollar, after touching Rs 45.2050 immediately after industrial data. It closed at Rs 45.1625/1725 on Tuesday. Early in the session, the rupee had risen to Rs 45.06, its highest since 4 January.
Annual industrial output in November grew at its slowest in a year and a half, partly on seasonal factors, and the central bank may stay on course to raise rates later this month to combat inflation.
Shares snapped a six-session losing streak, shrugging off slower-then expected growth in industrial output, lifted by firm world equities.
“The outlook for portfolio inflows, however, is clouded by both global and local uncertainties. Despite the outflows witnessed at the beginning of 2011, it is too early to rule out a revival of investor confidence,” Standard Chartered said in a note.
Foreign funds are net sellers of $498.12 million worth shares this year till Tuesday, after having purchased stocks worth a record $29.3 billion in 2010.
Also, mild dollar inflows into equity market along with global dollar weakness on one hand and importer dollar demand on the other, kept the rupee in a range, dealers said.
HDFC Bank’s Raina expects the rupee to move in 44.80-45.60 band in the short term.
With the rupee now closely following the domestic stock market, forex dealers will wait for the December inflation number due on Friday for direction cues.
“Persistent inflation above 7.5-8% is negative for the INR. We expect the central bank to hike rates by 50 basis points in Q1-2011 to keep inflation below 7 percent,” Stanchart note said.
India’s wholesale price index in December probably rose 8.35 percent from a year earlier, accelerating from from November’s 12-month low of 7.48%, a Reuters poll showed.
Annual food inflation for the week to 25 December rose for the fifth straight week to its highest in more than a year.
The euro edged up on Wednesday on speculation euro zone finance ministers may raise the lending capacity of the region’s rescue fund, though gains were limited as investors braced for a Portuguese bond auction.
The index of the dollar against six major currencies was down 0.07% at 80.787 points at local market close.
One-month offshore non-deliverable forward contracts were quoted at 45.38, weaker.