Mumbai: The Indian rupee halted a two-session rally on Tuesday as weak domestic shares, month-end dollar demand from importers and sharp gains in the dollar overseas weighed on the local unit.
The partially convertible rupee closed at Rs46.48/49 per dollar, after hitting a low of Rs46.5950, its weakest since 25 June and 0.6% below Monday’s close of Rs46.20/21.
“The rupee weakened tracking the equity markets and euro today,” said Ashutosh Raina, head of foreign exchange trading at HDFC Bank in Mumbai.
Indian shares shed 1.4% on Tuesday in line with world stocks which hit a 2-week low as investors were cautious ahead of bank repayments of emergency loan to the European Central Bank later this week.
Foreign fund flows into and out of stocks plays a crucial role in determining the rupee’s fortunes. So far in June, foreigners have bought a net $2.1 billion worth of shares, completely reversing the near $2 billion outflows seen in May.
Foreigners are net buyers of $6.7 billion so far this year, adding to net inflows of a record $17.5 billion seen in 2009.
Traders said the dollar’s sharp gains versus majors in late trade hurt the rupee. The index of the dollar against six major currencies was up 0.6%.
The euro hit a lifetime low against the Swiss franc and an 8 1/2-year trough versus the yen on Tuesday as stocks weakened and investors braced for a key euro zone refinancing programme to expire this week.
“There was a lot of dollar buying by oil firms but good dollar selling was also seen from corporates and mainly exporters,” a dealer with a large state-run bank said, adding that he expects the rupee to weaken further on Wednesday.
Oil is India’s biggest import and refiners are the largest buyers of dollars in the local currency market with demand tending to peak at the end of each month when they are required to make payments for their imports.
“The quarterly company results (in India) will set the tone for stocks and thus rupee going ahead. Friday’s jobless report from the US will set the tone for the risk markets,” said Nitesh Kumar, an inter-bank dealer with Development Credit Bank.
“China CPI too is coming out on 1 July, guess we’ll get the tone for risk by the 2nd week of July. Expect markets including rupee to be choppy until then,” he added.
One-month offshore non-deliverable forward contracts were quoted at 46.68, much 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 closed at 46.6550 and 46.6575 respectively, with the total traded volume on the two exchanges at a low $5.8 billion.