Rupee trims gains as euro debt woes linger

Rupee trims gains as euro debt woes linger

Mumbai: The rupee trimmed gains on Tuesday as a fall in European and local shares raised concerns about more foreign fund withdrawals, but the dollar’s losses against major currencies helped the unit notch up some gains.

The partially convertible rupee closed at 46.95/96 per dollar, off the day’s high of 46.8750, but still stronger than its close of 47.10/11 on Monday.

“The dollar-rupee opened lower with a gap but then due to the Fitch comments European equity markets fell and our markets followed too," said Manoj Kumar, deputy manager, forex dealing, at State Bank of Travancore.

Ratings agency Fitch unsettled British investors after saying “the scale of the UK’s fiscal challenge is formidable and warrants a strong medium-term consolidation strategy -- including a faster pace of deficit reduction than set out in the April 2010 budget."

Indian shares erased early gains and dropped nearly 1% on Tuesday, dragged down by weak European markets as worries continued over the euro zone’s debt crisis.

Foreign fund flows into and out of the share market are a crucial determinant of the rupee’s fortunes. Foreign funds, which had pulled out $2 billion in May, have infused around $37 million in June. Last year, record inflows of $17.5 billion had helped the rupee rise 4.7% on year.

“There are equal chances of the rupee moving both ways this week, but 46.50-47.70 should be the likely range, with good dollar buying expected to come in on every dip (in the dollar) as markets are still uncertain about emerging issues in the euro zone," Kumar added.

The dollar’s losses against major currencies, however, helped the rupee. The index of the dollar versus six major currencies, was down 0.1%.

Indian onshore dollar premiums rose on the back of the rupee’s strength in the spot market, with tight cash conditions also exerting upward pressure.

One-year onshore dollar premium rose to 109 points, from 103.50 points at previous close.

“Premiums are up as liquidity is tight and also tracking moves in the INR," said Nitesh Kumar, an interbank dealer with Development Credit Bank.

Dealers said importers and oil firms, the largest buyers of dollars in the local currency market, were also seen paying forwards.

Outflows of more than $14 billion towards third-generation mobile spectrum (3G) auction payments have squeezed the available free cash in the system, pushing up cash rates.

One-month offshore non-deliverable forward contracts were quoted at 47.16, weaker than the onshore spot rate.

In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange and MCX-SX closed at 47.0825 and 47.0850, respectively, with the total traded volume on the two exchanges at about $7.5 billion.