Rupee gains on broad dollar fall; oil demand hurts

Rupee gains on broad dollar fall; oil demand hurts

Mumbai: The rupee gained on Tuesday, buoyed by sharp losses in the dollar versus major currencies, but choppy domestic shares and demand for the US unit from oil firms and importers limited any sharp upside.

The partially convertible rupee closed at 45.09/10 per dollar, off its low of 45.2050 and 0.3% stronger than its close of 45.24/25 on Monday.

“The market was pretty dull today with just some oil demand seen," said a senior foreign exchange dealer with a private bank.

“I expect more of a two-way market in early 2011. 44.80-46.00 band, probably with a broader range of 44 to 46.80. Capital inflows should continue but should just about make the current account gap manageable, which is why the rangebound rupee view."

India imports nearly two-thirds of its oil needs and refiners are the largest buyers of dollars in the domestic currency market, with their demand tending to peak at the end of each month when they are required to make payments.

Traders said gains in other regional peers also underpinned rupee sentiment. All Asian currencies rose compared to the dollar.

The dollar’s index against six major units too was down 0.8% at 79.746 points when the rupee market closed.

The euro gained on Tuesday, recovering from recent weak levels, while the dollar came under broad selling pressure, hitting a three-week low against the yen and a seven-week low against the Australian dollar.

Traders said choppy local shares failed to provide any clarity on the direction of capital flows.

Indian shares closed slightly lower as the holiday season before the year end kept investors at bay, with little direction coming from mixed overseas markets.

Foreign institutional investors (FIIs) have pulled out a net $500 million from Indian equities this month through Monday. They are, however, net investors of $28.5 billion in 2010, on top of the $17.5 billion pumped in last year.

“Think Q1 2011 could see some small INR strength - with FII debt money and perhaps FPOs (follow-on public offers) of SAIL/ONGC keeping capital flows coming. Also, historically, Q1 also tends to see better current account situation," said Ananth Narayan G, head of fixed income, currency and commodities at Standard Chartered Bank in Mumbai.

“So rupee seen at 44.00-44.50 by March 2011, perhaps 46.00 by June 2011, so the range remains intact," he added.