Mumbai: The rupee rose on Thursday with gains in the domestic share market boosting hopes for capital inflows, but dollar demand from oil refiners and importers prevented a further upside.
The partially convertible rupee closed at Rs48.71/72 per dollar, 0.1% stronger than its Tuesday’s close of Rs48.78/79. The currency market was shut on Wednesday for a local holiday.
“The rupee was largely tracking equities and cross currencies today. It gained due the equity market recovery and pared some of the rise due to the USD recovery against some G-7 currencies,” the chief dealer with a large private sector bank said.
“There is no clarity on the near-term outlook really, but it should hold in the 48.20-49.20 range this month, technically.”
The dollar index, a gauge of the US unit’s performance against six majors, was up 0.1%.
Traders said demand for the US unit from oil firms capped rupee gains. Oil is India’s biggest import and refiners are the largest buyers of dollars in the domestic currency market.
Indian shares rebounded 1.4%, buoyed by a rally in equity markets worldwide after recently beaten-down Chinese shares rose and boosted commodity prices.
Dealers said they would be closely monitoring the monsoon situation to gauge its impact on the broader economy, which could determine the fate of foreign investments in India and help decide the rupee’s fortune.
India’s monsoon deficit narrowed to 27% as on 18 August as improved rainfall in the past week reduced the seasonal shortfall by two percentage points, government sources said on Thursday. Meagre rainfall has pushed India to the brink of drought, putting pressure on food prices and energy supplies.
One-month offshore non-deliverable forward contracts were quoted at 48.77/87, weaker than the onshore spot rate.
In the currency futures market, the most traded near-month contract on the National Stock Exchange and MCX-SX closed at 48.7350 and 48.7325, respectively, with the total traded volume on the two exchanges at about $1.7 billion.
HDFC Bank economists said in a note on Thursday there was possibility of some more depreciation for the rupee in the near term due to rising concerns about the strength of the recent recovery seen on the back of weak US and Europe consumer data, among other things.
However, the breach of the Rs50 mark is unlikely due to likely central bank intervention, buying on dips by foreign funds, fresh divestment flows and commodity price correction based on China’s growth helping current account balance, they said.