Rupee hits 1-week high; gains capped before Fed
The rupee rose on Tuesday supported by gains in local stocks and an improved outlook on foreign inflows, though reluctance to take big positions before Federal Reserve's policy statement later in the day, is seen limiting its rise.
The Federal Reserve's rate decision due around 18:15 GMT is being watched keenly for its stance on the need for further monetary stimulus as U.S. labor market has recently begun showing signs of improvement.
Persistent demand from local oil refiners, who happen to be the biggest buyers of the greenback in India, could be a spoilsport for the rupee, traders said.
At 10:41 a.m. (0511 GMT), the rupee was at 49.82/83 to the dollar, after hitting 49.79, a level last seen on March 5 according to Thomson Reuters. The unit had closed at 49.96/97 on Monday.
Most traders expect a range of 49.75 to 50.20 for the day.
"Rupee is likely to be stuck in a range because even though inflows are seen strong, continuous bidding from oil companies and possibly for defence (equipment purchases) will keep rupee strength limited," said a forex dealer with a state-owned bank.
Unexpectedly strong January industrial output numbers coupled with record high car sales in February have brightened outlook on foreign inflows, a key reason for the rupee's rise of 6.6 per cent so far this year.
Foreign funds have invested over $12.6 billion in Indian equities and debt so far this year, according to Securities and Exchange Board of India.
Traders said in the event of any negative developments in the local or global economy, the downside on rupee is expected to be limited as the Reserve Bank of India is most likely to shore up the currency.
The RBI has been actively intervening in the currency markets over the past few months to help support the rupee, which touched a record low of 54.30 on December 15.
According to data released by the RBI on Monday, it sold a net $7.3 billion in January in the spot market, only marginally lower than $7.8 billion in December.
The RBI's 75 basis points cut of the cash reserve ratio, the share of deposits that banks must hold with it, to infuse liquidity has already created room for intervention in case of a steep slide in the rupee, traders said.
The one-month offshore non-deliverable forward contracts were at 50.22.
In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and on the United Stock Exchange all ended at around 50.02, on a total volume of $842 million.
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