Mumbai: The rupee on Monday snapped a three-day winning streak as the dollar’s gains versus major units overseas weighed, but hopes for capital inflows stayed firm with the launch of the country’s largest-ever share sale.
The partially convertible rupee closed at 44.36/37 per dollar, 0.6% below 44.10/11 at close on Friday, when the rupee rose as high as 43.95, its highest since 29 August 2008. The rupee traded in a band of 44.1800-44.4150 during the day.
“I was anticipating today’s move. Euro also started reversal from $1.4100 and stocks also seem to be heading lower. After the mega flows, there should be some reversal,” said Hari Chandramgathan, a foreign exchange dealer with Federal Bank.
The US dollar bounced from a 10-month low against a basket of currencies on Monday, as investors uncertain about the extent of monetary easing by the US Federal Reserve trimmed bearish bets against the greenback.
The index of the dollar against six majors was down 0.4% when the rupee market closed.
“We think room for further appreciation of the INR is limited, as short USD positions are showing signs of being overstretched and the RBI is likely to join other Asian central banks in trying to limit currency appreciation,” analysts at Barclays Capital wrote in a daily note.
On Friday, the Reserve Bank of India (RBI) governor Duvvuri Subbarao said the central bank will intervene in the forex market if inflows turn lumpy.
Traders said they will continue to closely watch the central bank this week, which bought dollars on Thursday in a move they believe was the first intervention this year.
“It is highly likely that the Coal India IPO will be highly oversubscribed and we could see some FII repatriation once the IPO allocation is finalized,” analysts at Barclays Capital said.
“We look for USD/INR to move in a range of 43.90 to 44.50 for the week with an upside bias. In the medium term, we think the rising current account deficit and weaker fundamentals are likely to result in INR underperforming against other Asian currencies”.
The world’s largest coal miner Coal India’s $3.5 billion initial public offering is currently underway and is expected to see a flood of foreign capital inflows.
“Globally, USD was stronger today, so a bit of that’s rubbed off on INR,” said Ananth Narayan G., head of fixed income, currencies and commodities, South Asia at Standard Chartered Bank in Mumbai.
Early losses in local shares also hurt the rupee. Shares reversed early losses and eked out a 0.2% gain on Monday, as robust foreign fund interest and strong September quarter earnings overshadowed the pressure from the launch of country’s biggest-ever initial share offer.
For the year to date, the rupee is up 4.9% on record $23.3 billion foreign fund inflows into shares.
“We are looking generally for Asian currencies to appreciate against the dollar about 5-6% per year for next five years,” said David W. Carbon, managing director of economic and currency research at DBS.
He said DBS expects the rupee to be at 42 to the dollar by mid-2011.
One-month offshore non-deliverable forward contracts were quoted at 44.73, weaker than the onshore spot rate.
In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange, MCX-SX and United Stock Exchange closed at 44.4675, 44.4625 and 44.4625 respectively, with the total traded volume on the three exchanges at about an average $7.4 billion.