Mumbai: The rupee gave up most of its gains on Thursday on the back of the dollar’s rise against major currencies especially the euro while late losses in the domestic sharemarket also weighed on sentiment.
The partially convertible rupee closed at 44.44/45 per dollar, 0.1% stronger than its 44.48/49 close on Tuesday. The market was closed on Wednesday for a local holiday. In early deals, the rupee rose as much as 44.18, revisiting a 19-month high reached earlier this week.
“Markets opened gap down today because global markets were good overnight and Singapore adjusted its peg to the USD lower, which gave a positive sentiment for emerging Asia,” said Nitesh Kumar, an inter-bank dealer with Development Credit Bank.
“But then equity markets turned negative and euro came off and gave up its entire overnight gains pushing the rupee lower as well,” he added.
The euro fell against the dollar and the yen on Thursday as higher costs to insure against a Greek default highlighted persistent concerns about Greece’s debt problems and cut demand for risky assets.
“There was steady import buying today but profit-taking kicked in at higher dollar-rupee levels while some exporters came in to sell as well,” a senior dealer with a private bank said.
Oil is India’s biggest import and refiners are the largest buyers of dollars in the local currency market.
Dealers said the rupee was likely to continue to rise in the near-term with expectations of a rate hike at the central bank’s monetary policy review on 20 April preventing any sharp fall in the rupee.
Most analysts are expecting an increase in both the repo and reverse repo rates at the policy on Tuesday, while a few are also predicting a 50 basis point hike in both.
Dealers said firm domestic shares had helped sentiment in early trade but the reversal seen late afternoon weighed. Foreign funds, who have bought $5.4 billion worth of shares so far in 2010 are a key support for the rupee.
Indian shares fell for the third straight session and shed 1% weighed by financials, but IT bellwether Infosys Technologies continued its rally and hit an all-time high.
One-month offshore non-deliverable forward contracts were quoting at 44.48, marginally weaker than the onshore spot rate. The one-year onshore premium edged down to 149 points from 150 points at close on Tuesday.
“Premiums came down a bit after the lower inflation data today,” Development Credit Bank’s Kumar said.
The annual inflation rose less than expected in March as food and manufacturing price pressures eased, suggesting the central bank will opt for a 25 basis-point rate rise next week rather than a more aggressive move.
In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange and MCX-SX both closed at 44.49, with the total traded volume on the two exchanges at about $7.8 billion.