Mumbai: The rupee ended marginally stronger, but off the day’s high amid choppy trade, as a sharp rise in the euro against majors in late trade outweighed weak local shares and strong demand for dollars from oil importers.
But, sentiment remained bearish for most of the day after rating agency Standard & Poor’s downgraded Japan’s long-term sovereign debt rating.
“The rupee started to slip more after the downgrade of Japan. There was also strong demand for the dollar from oil importers,” said Rohan Naik, head of foreign exchange trading at Standard Chartered Bank in Mumbai.
Rating agency Standard & Poor’s cut Japan’s long-term sovereign debt rating for the first time since 2002, saying the country’s government lacked a coherent plan to tackle its mounting debt.
“There was massive US dollar sell-off in very late trade. That resulted in the last minute pull back of the rupee,” said a dealer at a private bank.
The partially convertible rupee ended at Rs 45.57/58 per dollar, 0.3% stronger than its Rs 45.69/71 close on Tuesday. It moved in a band of Rs 45.5350-45.6750 intra-day.
The market was closed on Wednesday for Republic Holiday.
Oil importers were buying the greenback at around Rs 45.60-45.65 level, dealers said. Oil is India’s biggest import and refiners are the largest buyers of dollars in the domestic currency market.
The euro rose 1% on the day versus the yen on Thursday as hawkish comment from an ECB policymaker boosted rate hike expectations in the euro zone and as the yen stayed pressured by a ratings downgrade on Japan.
“Stocks fell more after the Japan downgrade, and also the US dollar rallied for most part of the day,” Standard Chartered’s Naik added.
Shares fell 1.5% on Thursday to their lowest close in four-and-a-half months as rising borrowing costs dampened the outlook for companies, while improved prospects elsewhere lured foreign funds away.
Dealers expect the Indian unit to remain in a bearish grip on Friday as equity markets are seen slipping more.
“There was some mild dollar inflows through external commercial borrowings. The euro also bounced back very late. Both these had mild positive impact on the rupee,” said a dealer at a private bank.
Foreign funds were net sellers of over $755 million worth of shares this year until Tuesday, pushing the rupee down 1.8%. Last year, investments had reached a record $29.3 billion helping the rupee gain 4.1%.
One-month offshore non-deliverable forward contracts were quoted at Rs 45.85, weaker than the onshore spot rate, when the local foreign exchange market closed.
In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange closed at 45.81, 45.8075 and 45.80, with the total traded volume on the three exchanges at $563 million.