Rupee turns weaker ahead of RBI policy outcome

The rupee today weakened further against the US dollar in choppy trade, falling by another 4 paise to end at 67.15 ahead of tomorrow's RBI policy outcome.

Trading was largely confined to a tight range for most part of the day with no directional strength and market moving factors.

Currency traders and speculators were also cautious ahead of the rate-setting Monetary Policy Committee's review decision tomorrow.

Expectations of capital inflows and some dollar selling by foreign banks, however, helped the Indian currency to trim some early losses.

Forex market sentiment also took a hit with India's services sector activity contracting for the first time in three months in May as new business orders stagnated and cost pressures intensified amid higher fuel prices.

Meanwhile, net investment by FIIs turned positive after a long spell of selling and bought shares worth Rs 2,354.03 crore yesterday, as per provisional data released by the stock exchanges.

On the energy front, crude prices took yet another big blow, giving up early gains, as investors weighed the chances that global supply will increase substantially if OPEC decides this month to raise output even as US production grows at near-record rates.

Brent crude futures, an international benchmark, is trading sharply down by 1.61 per cent at USD 74.08 a barrel, in early Asian trade.

The domestic unit opened on a slightly positive note at 67.07 from overnight close of 67.11 at the inter-bank foreign exchange (forex) market.

But it soon lost ground in line with local stock market and eventually touched a low of 67.23 in mid-afternoon deals before ending at 67.15, showing a loss of 4 paise, or 0.06 per cent.

The RBI, meanwhile, fixed the reference rate for the dollar at 67.1794 and for the euro at 78.5394.

In the meantime, the 10-year benchmark bond yield tumbled to 7.83 per cent from 7.88 per cent.

The dollar index, which measures the greenback's value against a basket of six major currencies, was up at 94.14.

In the cross currency trade, the rupee however bounced back against the pound sterling to settle at 89.68 per pound from 89.79 and also recovered against the euro to finish at 78.44 as compared to 78.79 on Monday.

The local unit also continued to rule firm against the Japanese yen to close at 61.18 per 100 yens from 61.28 yesterday.

Elsewhere, the British pound propelled higher against the greenback benefiting from the stronger than expected service and composite PMI readings.

The UK's service PMI rose to 54.0 for the second month, beating the market expectations of 53.0 in May and confirmed a solid rebound from winter adverse weather-related blip.

The euro maintained its recovery trend supported by signs of stability in Italian politics and a slightly weaker US dollar despite unimpressive Eurozone fundamentals.

After hitting a 10-month low a week ago, the common currency has been recovering as investors took comfort from the creation of a government in Rome.

In forward market today, premium for dollar declined due to mild receiving from exporters.

The benchmark six-month forward premium payable in October eased to 111-113 paise from 112-114 paise and the far-forward April 2019 contract softened to 250-252 paise from 251-253 paise previously.