Re falls 4% amid thin volumes

Heavy dollar buying in the last 30 minutes of trade wiped out the rupee’s gains on Wednesday, as the currency closed 24 paise, or 0.4 per cent, lower than the previous close.

The rupee closed at its opening level of 55.64 a dollar on Wednesday, after rising to a four-day high of 55.26 and falling to the day’s low of 55.73.

“Volumes were thin on Wednesday, and any big deal was causing volatility in the market,” said a foreign exchange dealer with a large public sector bank.

Dealers said dollar inflows of about $250 million from a Japanese bank in early trade helped the rupee appreciate against the dollar.

But, dollar demand from oil marketing companies dragged the currency to close at a lower value.

Foreign institutional investors on Wednesday pumped in net inflows of Rs 84 crore, according to Bombay Stock Exchange data. Yesterday, the rupee had gained, tracking the movement of the euro.

“Markets were expecting the central bank to step in, but there were no signs of intervention on Wednesday,” said a senior treasury official at a public sector bank.

Dollar demand from traders squaring off their positions towards the end of the day also contributed to the rupee’s fall, the official added.

According to latest data from the Reserve Bank of India (RBI), the central bank’s net dollar sales in the spot foreign exchange market rose from $275 million in April to $485 million in May.

However, this is lower than the $7-billion RBI intervention in January.

The outlook for the rupee’s movement in the medium term is mixed.

In a survey by Standard Chartered Bank, 40 per cent of respondents said they expected the rupee to touch levels above 57, while 40 per cent felt the rupee would remain in the 55-57 range at end of September. “Of the clients, 20 per cent felt the dollar-rupee exchange rate would appreciate during this quarter, forecasting a range of 52-55,” said Samiran Chakraborty, chief economist at Standard Chartered Bank.