ET:Rupee wipes gains as shares fall; may face selling pressure
MUMBAI: The Indian rupee fell back on Monday as local stocks dropped for the third straight session and foreign capital inflows dried up during the session amid subdued volumes towards the close of the fiscal year.
The rupee is seen moving in a range of 49.85 to 50.50 to the dollar this week, although some traders did not rule out a bout of selling towards the end of the month as banks close accounts for the 2011/12 fiscal year.
The rupee ended at 50.23/24 to the dollar, after rising to 50.0650 in early trades. It had closed at 50.175/185 on Friday. Dollar inflows into local debt likely supported the Indian currency early in the session. However, a fall in local equities pulled the rupee lower.
The inflows had came after an auction on Friday of unused limits, which allow foreign institutional investors to buy long-term government and corporate bonds, was oversubscribed.
"49.85 has emerged as a very strong resistance for the rupee and as the year end approaches traders will look to crystallise profits," said Naveen Raghuvanshi, associate vice president of foreign exchange trading at Development Credit Bank. "It is also the quarter end and the month end, so market could turn biddish (on the dollar)."
The government's budget for 2012/13 was also seen as negative for the currency since it offered no new solutions to address the country's fiscal constraints, traders said.
Rating agency Moody's Investors Service said the budget was credit negative for Asia's third largest economy. Technical charts also hinted at selling pressure on the rupee if it failed to strengthen past the 50 level soon, but most traders expect any sharp slide in the rupee to be cut short by the central bank.
The Reserve Bank of India has been actively intervening in the local foreign exchange market over the past few months to shore up the currency in case of acute selling pressure. The RBI sold a net $7.3 billion in January in the spot market, after sales of $7.8 billion in December, data released by the RBI last week showed.
The one-month offshore non-deliverable forward contracts were at 50.71. In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange ended at 50.3625, on the MCX-SX at 50.3700 and on the United Stock Exchange at 50.3400, on a total volume of $3.29 billion.
