The rupee snapped four-day gains to close 0.2 per cent lower on Wednesday due to profit-booking by traders and high dollar demand from oil marketing companies.
The Indian currency touched an intra-day high of 54.18 before closing at 54.50 a dollar, 12 paise lower than the previous close. “Lack of dollar supply added pressure to the rupee exchange rate,” said a dealer with a public sector bank. Markets in the US were shut on Wednesday due to Independence Day. Moreover, oil prices marched up. This increased the dollar demand of oil companies on Wednesday.
Speculations that the government may scrap withholding tax of 20 per cent levied on foreign institutional investments in government bonds helped the rupee stage a recovery in the second half of the trade.
The rupee had appreciated by five per cent after recovering from an all-time low of 57.33 against the dollar last week. The recovery was attributed to foreign fund inflows for investment in Indian debt papers for which limits were auctioned by the capital markets regulator on Wednesday. There were net inflows of Rs 239 crore in Indian equities on Wednesday, according to data from the Bombay Stock Exchange. In all, FIIs have pumped in over Rs 3,500 crore since Friday.
But, traders were wary of volatility in the currency’s exchange rate. “However, we have seen the rupee correcting heavily due to its oversold position in the market. Next support for the rupee is seen at 53.50 per dollar,” said India Forex Advisors in its report.
The rupee has lost over seven per cent against the greenback since the start of the current financial year, mainly because of increased risk aversion globally.
However, there are renewed hopes that growth supportive policy measures may help the rupee.