Mumbai: The rupee backed away from two-month peaks on Wednesday after the stock market fell, indicating foreign investors were consolidating their positions after a sharp rally in recent weeks. The partially convertible rupee ended at 49.58/60 per dollar, 0.6% weaker than Tuesday’s close of 49.29/30, which was its strongest since 17 February.
Policy watch: The results of India’s month-long national elections, due on 16 May, will set the trend for the rupee. Rajkumar / Mint
“There was not much action today, but there was some selling by exporters as well as custodian banks when the rupee rose to 49.35 levels, but then when stocks dropped, the rupee also fell,” said Madhusudan Somani, head of foreign exchange trading at Mumbai-basedYes Bank Ltd.
The rupee is still up 5.3% from a lifetime low of 52.20 hit in early March.
The yen gained broadly on Wednesday, while the dollar edged up versus the euro, as nervousness ahead of US stress test results on banks encouraged investors to pare back exposure to risk.
The stock market fell 1.5% as investors cashed in their profits for a second day after the market rose 10% in over two sessions. Foreigners have bought $1.5 billion (Rs7,425 crore) of local shares in April and another $436 million in the first two days this week, after heavy outflows in January and February, data from the market regulator showed.
Data for Wednesday would be released on Thursday.
Foreign inflows have been a key factor in the rupee’s rally in the past few weeks. Last year, record outflows of about $13 billion had pushed the rupee down by nearly a fifth.
The results of India’s month-long national elections due on 16 May would set the trend for the rupee, dealers said.
Goldman Sachs said recent Purchasing Managers’ Index (PMI) data from China and India suggested the period for economic contraction is over and its long emerging market/short G3 (the US dollar, the euro and the Japanese yen) basket trade showed a return of 5.7% in the first month since its inception.
Some traders said the central bank’s move to scrap its second daily money market auction has pressured shorter-dated yields lower leading to falling demand for such money market instruments from foreign investors.