Rupee drops by 12 paise to Rs 73.42 against US dollar on Covid worries

The rupee pared its initial gains to close down by 12 paise at 73.42 against the US currency amid concerns that rising Covid-19 cases and lockdowns in some states may hurt the economic recovery

The rupee pared its initial gains to close down by 12 paise at 73.42 against the US currency on Tuesday amid concerns that rising COVID-19 cases and subsequent lockdowns in some states may hurt the economic recovery.

Investors were also cautious ahead of the RBI policy statement to be released on Wednesday. Besides, gains in crude prices and a stronger dollar overseas weighed on the rupee sentiment.

"Rupee continued to trade in a narrow range for the third successive session despite volatility in domestic equities. Market participants remain cautious ahead of the important RBI policy statement that will be released on Wednesday," Gaurang Somaiyaa, Forex & Bullion Analyst, Motilal Oswal Financial Services, said.

The expectation is that the central bank could keep rates unchanged but commentary will be keenly watched that could trigger volatility for the currency, Somaiyaa said.

"We expect the USDINR (Spot) to trade sideways with a positive bias and quote in the range of 73.20 and 73.80," he added.

"Indian rupee gave up early gains as markets started positioning ahead of the RBI policy decision on Wednesday. The central bank is poised to hold interest rates as the economy faces a renewed threat from the pandemic, with new cases hitting a record, and high frequency indicators are now coming off," said Dilip Parmar, Research Analyst, HDFC Securities.

The daily rise in new coronavirus infections in India remained above 90,000 for the third consecutive day taking the nationwide COVID-19 tally of cases to 1,26,86,049, according to the Union Health Ministry data updated on Tuesday.

At the interbank forex market, the local unit opened at 73.22 against the greenback and traded in the range of 73.20 to 73.42 during the day. The rupee finally ended at 73.42 against the American currency, registering a fall of 12 paise over its previous closing of 73.30.

According to Sriram Iyer, Senior Research Analyst at Reliance Securities, the Indian Rupee weakened for the second consecutive session against the U.S. Dollar, weighed down by dollar demand from importers.

In the international markets, the U.S. dollar rebounded from a near two-week low but still remained on the weaker side of things on Tuesday's afternoon trade as investors await the Fed monetary policy meeting minutes on Wednesday, Iyer said.

The dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.13 per cent to 92.71. Brent crude futures, the global oil benchmark, were trading 2.37 per cent up at USD 63.62 per barrel.

On the domestic equity market front, the BSE Sensex ended 42.07 points or 0.09 per cent higher at 49,201.39, while the broader NSE Nifty advanced by 45.70 points or 0.31 per cent to 14,683.50.

Foreign institutional investors were net sellers in the capital market as they offloaded shares worth Rs 931.66 crore on Monday, according to exchange data.