Re to weaken in the near-term on euro, subdued foreign flows

Currency appreciates against the dollar on the back of custodian flows from foreign banks

The rupee, under pressure during the last three trading days, appreciated against the dollar on Tuesday on the back of custodian flows from foreign banks. The currency closed at Rs 55.01 a dollar, compared with the previous close of Rs 55.23.

The rupee opened at Rs 55.10 per dollar on Tuesday. During the day, it touched a low of Rs 55.38, after Fitch Ratings reiterated its ‘negative’ outlook on India’s sovereign credit rating, citing concerns about slowing economic growth, persistent inflationary pressures and an uncertain fiscal outlook. But, it recovered before the closing hour.

“There were custodian inflows by foreign banks and that helped the rupee against the dollar,” said Sandeep Gonsalves, forex consultant and dealer, Mecklai & Mecklai. During the day, it had strengthened to Rs 54.98 a dollar.

According to the Street, even if the rupee starts strengthening, it will never trade below the Rs 53 a dollar mark till March 31.

“The big chunk of inflows due to foreign direct investments (FDIs) are not coming. So, till March, it may not go below the Rs 53 per dollar mark,” said S Srinivasaraghavan, executive vice-president and head (treasury), Dhanlaxmi Bank.

According to Srinivasaraghavan, the rupee is expected to trade in the range of Rs 54.85-55.25 a dollar tomorrow. The euro is weakening and that will have a weakening bias on the rupee, said Srinivasaraghavan.

FIIs invested $31.45 million on Tuesday, compared with $145.64 million yesterday. The Street expects subdued foreign institutional investor (FII) flows in the near term.

“The short-term range for rupee is seen at Rs 54-56 and cues are mixed. While FII flows will be subdued, post-Budget bullish sentiment on the Indian economy and shift into a rate cut cycle will provide solid support for the rupee for a possible close around Rs 54.50 a dollar,” said J Moses Harding, head, economic and market research, IndusInd Bank.