Rangebound Run On Cards

The rupee is likely to remain rangebound between 46.96 and 47.05 during this week, with dealers portending movement in 2-to-3 paise range.

Forward premiums are expected to remain softer, if there are indications from the central bank of a cut in interest rate.

"The demand continues to be little with enough supplies entering the market following cancellations of forward deals by exporters. This is likely to continue as the week goes by. But month-end demand for dollars is expected to rear up by mid week, which may weaken the rupee further," said a dealer with a new private sector bank.

On Friday the rupee ended the day up from Thursday's close at 46.9750, after falling to an intra-day low of 47.0175/02 due to some early morning demand. It remained rangebound after that.

The Reserve Bank of India's (RBI) reference rate on Friday was 47.01. "Volumes are expected to remain thin but the rupee should be able to sustain it. It should be able to maintain a range of 46.96 to 47.03 with the rupee stabilising at 47 or lower," said a foreign exchange dealer.

Forward premiums should come off a few paise despite the fact that dealers believe that the premiums at their current levels are bottoming out.

The six-month (annualised) should keep a range of 4.85 per cent and 5 per cent. It closed on Friday at 4.86 per cent, while the one-year (annualised) ended at 4.90 per cent.

On Friday, the forwards inched higher as banks unwound their long positions, accumulated due to the view that premiums had bottomed out.

"Profit booking pushed the premiums lower but the sentiment in the market could push the premiums even lower this week. The one-year (annualised) is expected to keep a range 4.80 per cent to 5.05 per cent," said a dealer with a new private sector bank.

"As long as the rate cut does not happen, forwards may not move down much," he added. With the US Fed having cut its rate by over 200 basis points, the RBI is being expected to cut the rate. Until the rate cut come through, the sentiment is likely to remain a cautious one.