Rupee weakens after two-day rally as dollar strengthens, crude rises

The rupee depreciated to 85.34 per dollar on Tuesday after logging gains on two previous sessions, a fall attributed to rise in dollar index and crude oil prices, said dealers. The selling of domestic equities also weighed on the local currency.

 

The domestic unit had ended the previous session at 85.09 per dollar.

 

The dollar index rose by 0.43 per cent to 99.36 on Tuesday. It measures the strength of the greenback against a basket of six major currencies.

 

“The rupee weakened, retreating from a two-day surge, as the dollar strengthened against major currencies. This dollar recovery was fuelled by a rebound in US bonds, which in turn was prompted by indications from Japan that it is considering a reduction in its bond issuance. This news encouraged investors to seek alternatives in dollar-denominated assets,” said Dilip Parmar, senior research analyst at HDFC Securities.

 

“In the near term, the spot USDINR pair is anticipated to rise incrementally due to month-end adjustments and demand from oil importers,” he added. 

 

The local currency has appreciated by 0.1 per cent against the dollar in the current financial year so far, whereas, in the current calendar year so far, it has witnessed 0.3 per cent appreciation.

 

“There was month end demand for dollar from oilers, and dollar was up,” said a dealer at a state-owned bank.

 

“There is resistance at 85.75 per dollar, and on the other end around 84.75 per dollar,” he added.

 

The upcoming IPOs of Scoda Tubes and Groww, along with broader fundraising activity of around $3.4 billion, are expected to boost foreign institutional investor (FII) inflows, keeping the rupee afloat, said dealers.

 

However, market participants also said that expectations of additional rate cut in the upcoming MPC meeting is weighing on short-term rupee sentiment. The downward trend in bond yields is further narrowing the yield differential, adding pressure on the local currency.