MUMBAI: The rupee retreated from one-month highs but still closed stronger on Monday as gains in the domestic equity market raised expectations
of fresh inflows and offset dollar demand from oil refiners.
The partially convertible rupee closed at 48.05/06 per dollar, off its high of 47.92, its strongest since November 11, but gaining 0.8% from its previous close of 48.43/45.
"The dollar-rupee movement was erratic today with a lot of banks covering their short dollar positions and there was also some oil buying," said V Kumar, chief dealer with State Bank of Travancore.
Shares rose 1.5% to their highest close in more than a month, with the recent return of foreign funds and expectations of more policy steps to counter slowing activity lifting investor confidence.
Foreigners have already so far in December bought shares worth a net $400 million, but are still net sellers of $13.3 billion this year. Last year, they had bought a record $17.4 billion worth of shares, a major support for the rupee.
Oil is India's biggest import and refiners are the largest buyers of dollars in the domestic currency market. Oil rose above $48 a barrel boosted partly by expectations OPEC will agree on a deep supply cut this week to try to prop up prices.
One-month offshore non-deliverable forward contracts were at 48.35/50, weaker than the onshore spot rate, indicating a bearish outlook for the currency.
However, many local traders think otherwise and expect it to rise further from here.
"The trend for the dollar-rupee is lower, we could see it touch 47 or even 46.50," V Kumar said.
