Mumbai: The rupee fell to its lowest level in more than a week on Tuesday as investors unwound short dollar positions globally ahead of the US Federal Reserve’s policy decision at 1815 GMT.
Market players expect a dovish tone from the Fed but are divided as to how far it would go to back up its words with action.
Some see the Fed taking minor steps such as reinvesting funds to maintain its balance sheet, but not going back to full-fledged quantitative easing.
The partially convertible rupee closed at 46.3950/4050 per dollar, after hitting 46.4275, its lowest since 30 July and 0.6% below its close of 46.125/135 on Monday. This is the unit’s biggest single-day fall since 19 July.
“The rupee depreciated as expected tracking the dollar and equities moves,” said Ashtosh Raina, head of foreign exchange trading at HDFC Bank in Mumbai.
Indian shares shed 0.4% with software companies leading the fall, dragged down by weak world equities on caution ahead of the US Federal Reserve’s meeting, but dealers ruled out a bearish sentiment.
Until Monday, foreigners had been net buyers of $11.2 billion worth of shares, in addition to last year’s record $17.5 billion inflows.
“I see the rupee trading in a 45.75 and 46.75 range until September-end. I dont see it appreciating much beyond 46 levels,” said Ashutosh Khajuria, head of treasury at IDBI Bank in Mumbai.
“Around the 45.75 level we would see a lot of importers coming in to cover, pushing the rupee lower.”
The dollar rose on Tuesday as traders trimmed short positions, awaiting the result of the US Federal Reserve’s policy meeting amid speculation of further easing to shore up a flagging US economy.
The dollar index against six majors was up half a percent when the rupee closed.
“The market was caught short dollar, hence the unwinding today, but we should see it trading in a range of 46.10-46.80 this week,” a senior dealer with a foreign bank said.
One-month offshore non-deliverable forward contracts were at 46.59, 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 46.53 and 46.5325 respectively, with the total traded volume on the two exchanges at a low $3.85 billion.