Rupee edges up on strong GDP data; euro hurts

Rupee edges up on strong GDP data; euro hurts

Mumbai: Rupee seesawed on Tuesday before closing marginally stronger as positive sentiment due to a better-than-hoped economic expansion in the September quarter was offset by sharp losses in the euro.

India’s economy grew more than expected in the second quarter, boosted by farm output and manufacturing, putting pressure on the central bank to tighten monetary policy although a rate increase next month still looks unlikely.

The partially convertible rupee closed at 45.88/89 per dollar, off its low of 46.12, its weakest since 17 September, and 0.1% above Monday’s close of 45.93/94.

On the month, however, the rupee fell 3.2%, in its biggest monthly decline since May, when it had shed 4.3% and snapped four consecutive monthly gains.

“Rupee was moving in perfect traction with the euro. Euro was under pressure with an immediate objective at 1.2900-1.2850, thus risking for one touch into 46.15-46.25. Beyond there, strong fundamentals should come into play to bring in huge supplies," said J. Moses Harding, head of global markets at IndusInd Bank.

The dollar’s index versus six majors, which has maximum weightage to the euro, was up 0.3% when the rupee market closed. It had been up as much as 0.6% earlier.

“Rupee’s weakness beyond 46.20-46.50 may not be in the central bank’s interest in its fight against inflation, with crude above $85," IndusInd’s Harding said.

Crude oil is India’s biggest import 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.

Oil fell to around $85 on Tuesday, consolidating as the dollar hit a 10-week high and the euro fell on worries over the European debt crisis and concerns China may raise interest rates and cap energy demand growth.

The euro fell more than 1% on the day against the dollar and the Swiss franc on Tuesday, taking a further beating due to speculation that other euro zone countries may follow Ireland down the bailout route.

Dealers said some exporters came in to sell dollars around 46.10 levels, to take advantage of the sharp fall in the local unit, thus limiting a further downside.

Shares too recouped early losses and climbed 0.6%, supported by better-than-expected economic growth and firm European markets.

Foreign funds bought $59.4 million worth of shares on Monday, latest data shows, taking net investments to a record $28.7 billion in shares so far in 2010, on top of the $17.5 billion purchased last year.

The one-year onshore dollar premium eased to 204 points from 207.5 points at close on Monday as exporters received forwards, dealers said.

One-month offshore non-deliverable forward contracts were at 46.20, weaker than the onshore spot rate, suggesting a bearish near-term outlook.

In the currency futures market, the most traded near-month dollar-rupee contract on the National Stock Exchange, MCX-SX and United Stock Exchange closed at 46.1325, 46.1275 and 46.1350 respectively, with the total traded volume on the three exchanges at an average $6 billion.