Mumbai: The Indian rupee rose in early trade on Tuesday, tracking gains in local share market and a weak dollar overseas, and is expected to move in a narrow band around the RBI policy announcement.
At 10:07am, the partially convertible rupee was at Rs46.87/88 per dollar up from Rs47.04/05 on Monday, when it had touched an intraday high of Rs46.80, its strongest since 16 July.
Market focus is on the Indian central bank’s interest rate decision and its review statement on economic growth and inflation projection for the first quarter of the current fiscal year.
Markets rose 0.2% in early trade on Tuesday, with Reliance Industries leading the rise, taking cues from strong Asian markets.
Rate hikes could temporarily hurt the rupee if the stocks fall, but in the long run would help the currency gain due to the interest rate differential, dealers said.
The euro held near a two-month peak against the dollar on Tuesday on relief over stress tests on European banks, but it was capped at $1.30.
The index of the dollar against six major currencies was down 0.1% and would be watched for cues, dealers said.
Foreign capital in local shares is a key driver of the rupee. So far in 2010, foreigners have bought a net $9 billion worth of shares, in addition to last year’s record $17.5 billion inflows.
One-month offshore non-deliverable forward contracts were quoted at Rs47.02, 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 were both at Rs46.89, with the total traded volume on the two exchanges at about $805 million.