Mumbai: The rupee held in a tight range on Monday as mild gains in domestic shares and the dollar’s losses versus majors was offset by concerns over sustained risk aversion in global markets.
The partially convertible rupee closed at 46.65/66 per dollar, slightly stronger than 46.67/68 at close on Friday. The unit traded in a narrow range of 46.56-46.6750.
“The market was very rangebound today, the rupee initially tried to break 46.60, but that did not sustain for long. There were no apparent flows in the market today,” said Naveen Raghuvanshi, an associate vice president with Development Credit Bank in Mumbai.
“The rupee should hold in a 46.50-46.80 range for this week as there is no major data expected. But for this deadlock to be broken, global markets need to take some side, there has to be some trigger,” he said.
The index of the dollar against six majors was down 0.1% and most Asian units were stronger compared to the US unit.
Indian shares were little changed on Monday on lack of any major triggers but firm European markets and better monsoon prospects along with continued foreign fund inflows provided some support.
Shares are watched for cues on capital flows. So far this year, foreign funds have bought shares worth a net $12.4 billion, in addition to last year’s record $17.5 billion investment.
“Stocks were very ranged and did not give any clear indications. The euro too was just dancing around $1.2700. None of the corporates were seen/heard of in the market, hence rupee was very steady,” a dealer with a large state-run bank in Mumbai said.
“We have a bearish view on the euro, which should prop the dollar. Additional surge would come, if we see a major correction in stock markets. On the other side if dollar-rupee breaks the 46.30 level over the next week, we may see 45 levels soon,” he added.
One-month offshore non-deliverable forward contracts were at 46.86, 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 46.6950 and 46.6925 respectively, with the total traded volume on the two exchanges at about $4.2 billion.
“Despite the strong $3 billion FII inflows last month, we expect USD/INR to continue trading in a range of 46.25 to 46.90. Indeed more inflows may lead USD/INR lower in the near term,” Barclays Capital said in a research note.
“The INR’s medium-term fundamentals look weak, as a widening current account deficit and overvaluation on a REER basis set the stage for further underperformance. We target USD/INR at 47.00 in three months,” the note highlighted.
“While debt-creating capital inflows are set to rise in the coming months as domestic borrowing costs increase, we do not expect this to trigger sharp currency appreciation, as we think the RBI will likely absorb these flows.”