Mumbai: The rupee gave up gains in late trade on Tuesday after China raised key rates which triggered concerns of a broad-based risk aversion in markets and helped the dollar gain against most major currencies.
The rupee had earlier dropped to one-week low due to large dollar demand from oil and gold importers, but reasonably large dollar sales by foreign banks later in the day, helped the unit touch the day’s high of 44.1950.
The partially convertible unit closed little changed at 44.35/36 per dollar, marginally above Monday’s close of 44.36/37. It had dropped as low as 44.5075 earlier in the day, its weakest since 13 October.
Last Friday, rupee had risen to a more than 25-month high of 43.95.
“The spot dollar/rupee moved higher after the China rate hike. There had been good import buying in the morning,” said Ashtosh Raina, head of foreign exchange trading at HDFC Bank in Mumbai.
The People’s Bank of China said on Tuesday it was raising its benchmark one-year interest rates by 25 basis points with effect from Wednesday.
Gold importers had been buying dollars to take advantage of the near 1% drop in international gold prices. Dealers said there was good demand from oil refiners too, the largest buyers of dollars in the local currency market.
“The dollar has been strong since morning today, which weighed on the rupee. But there was some good supply in the afternoon which helped,” said a senior foreign exchange dealer with a state-run bank in Mumbai.
“The rupee is likely to trade in a range of 43.75 to 44.50 this week, with a bias towards rupee appreciation,” he added.
Weak Asian currencies and anticipation of capital outflows as refund after the Coal India IPO allocation weighed on the rupee, while Brazil’s tightening of foreign fund investment norms to curb its currency rally also hit sentiment.
State-run Coal India launched a $3.5 billion initial public offering (IPO) on Monday, the country’s largest IPO so far, with its lower-than-expected pricing and exposure to India’s booming electricity demand expected to draw solid investor interest.
The issue is expected to draw billions of dollars in overseas demand that could add to upward pressure on the rupee.
Most Asian currencies were marginally weaker than the US dollar on Tuesday.
The index of the dollar against six majors was up nearly 1% when the rupee market closed.
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 44.46, 44.4575 and 44.4550 respectively, with the total traded volume on the three exchanges at an average $8.5 billion.