Mumbai: Rupee edged higher on Monday tracking the euro’s sharp gains in the previous session, but a choppy domestic sharemarket clouded the outlook for foreign fund flows and limited the gains.
At 10:20 am, the partially convertible rupee was at 45.57/58 per dollar, slightly stronger than 45.615/625 at close on Friday when it had dropped during trade to 45.77, its weakest since 1 December.
Ashtosh Raina, head of foreign exchange trading at HDFC Bank, said traders were awaiting the central bank’s policy review on Tuesday for direction.
“The market is expecting a 25 basis points increase and if the policy is in line then not much movement expected,” he said.
The Reserve Bank of India (RBI) is expected to resume its rate hike cycle at the quarterly monetary policy review as soaring inflation stalks Asia’s third-largest economy.
“Right now the market is quite dull and has been rangebound, but buying pressure is there due to choppy shares. I think 45.50-45.65 can be the range for the day,” a senior dealer with a large state-run bank said.
The euro backed away from a nine-week high in early Asian trade in the face of heightened political uncertainty in Ireland, but euro bears were wary of becoming too negative having been badly burnt in the last couple of weeks.
The dollar index, a measure of the greenback’s performance against six major currencies, was up 0.1% at 78.297 points.
Indian shares were trading up 0.3% led by the country’s top lender, State Bank of India, after it posted better-than-expected quarterly profit. The index had briefly turned negative earlier.
Foreign funds have sold more than $900 million of shares since the start of this month, pushing the rupee down nearly 2%. In 2010, investments had reached a record $29.3 billion and helped the rupee rise 4.1%.
Traders were also watching for any dollar demand from oil firms. Oil is India’s biggest import and refiners are the largest buyers of dollars in the domestic currency market.
“We favour short USD-INR positions ahead of the policy meeting. However, given recent USD-INR volatility, funds may consider 3M USD-INR range forwards, buying 3-month 45.50, USD put/INR call and selling 47.70, USD call/INR put for zero cost,” Standard Chartered Bank suggested in a note.
One-month offshore non-deliverable forward contracts were at 45.89, weaker compared to the onshore spot rate.
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 were all at 45.6075, with the total traded volume on the three exchanges at $1 billion.