Mumbai: The rupee strengthened on Friday as shares jumped on the back of a global risk rally fuelling hopes for foreign fund inflows, but ended off the day’s highs as the euro took a breather in its rise versus the dollar.
The partially convertible rupee closed at 49.1550/1650 per dollar, 0.4% stronger than the previous close of 49.34/35. It had briefly touched a one-week high of 49 in early trade.
“We have the non-farm payroll data later today, so that will be crucial for direction heading into next week,” said Ashtosh Raina, head of foreign exchange trading at HDFC Bank.
US non-farm payrolls probably increased 60,000 last month after holding steady in August, according to a Reuters survey. August was the first month in a year that the ailing economy failed to create jobs. The data is due at 1230 GMT.
Traders said the rupee retreated from the day’s high tracking the euro and as some state-run banks stepped up dollar purchases to make payments likely towards government’s defence purchases.
“Some (dollar) buying was there in late afternoon from state-run banks, likely towards defence contracts,” a senior dealer with a private bank said.
The euro paused in its climb against the dollar on Friday as investors were hesitant to add to the single currency’s upside before US jobs data, following its rally after the European Central Bank provided liquidity to struggling euro zone banks.
The euro was trading at $1.3437 when the local forex market closed, off the day’s high of $1.3463. The index of the dollar against six major currenices was at 78.471 points.
Indian shares rose 2.8% on Friday after a four-day slide, as euro zone plans to shore up struggling banks eased concerns about Europe’s debt crisis and helped revive risk appetite.
The Bank of England launched a second round of quantitative easing to defend Britain’s faltering economy on Thursday and the European Central Bank threw another lifeline to commercial banks by renewing offers to lend them one-year funding in two operations, this month and in December.
Foreign fund inflows into domestic shares help the rupee. FIIs have so far however, been net sellers of nearly $564 million, after having purchased a record $29.3 billion in 2010.
The rupee had slumped 8.8% in the three months to September, its biggest quarterly fall in nearly three years and the near-term outlook has been weighed down by a slowing economy and widening current account deficit.
“This could be a bear market rally. Nothing has really changed in the global economy,” said a forex dealer at a foreign bank in Mumbai.
“The rupee is broadly expected to hold in a 48.50 to 49.90 range in the near-term,” he added, mirroring the view of many others in the market.
The one-month onshore forward premium was at 21.75 points from 18.5 on Wednesday while the one-month offshore non-deliverable forward contracts were quoted at 49.34.
In the currency futures market , the most traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange closed at 49.2975, 49.2950 and 49.3450 respectively. The total traded volume on the three exchanges was lower than normal at $4 billion.