MUMBAI – The Indian rupee snapped three sessions of gains and fell against the U.S. dollar Wednesday, weighed by a weak euro and greenback purchases related to defense and oil imports.
In earlier trade the local currency had touched a five-week high aided by a spate of fund inflows from overseas investors into high-yielding local debt.
The dollar was at 51.89 rupees late Wednesday, recovering from the intraday low of 51.53, a level last seen on Dec. 7, 2011, and compared with 51.71 in late Asian trade Tuesday.
The rupee's recent rally is probably just a short-term bounce as seasonal capital inflows into local debt boost the currency temporarily, said Priyanka Kishore, a currency strategist at Standard Chartered Bank.
But with concerns remaining about economic growth and the gaping current-account deficit, the rupee could be set to fall again soon, Ms. Kishore added.
Dealers said the rupee didn't find support from local stocks, unlike Tuesday when shares rose 2.2%. The Bombay Stock Exchange's Sensitive Index gained just 0.1% Wednesday.
The euro fell against the dollar in European trade Wednesday after Fitch Ratings warned that the European Central Bank must do more to prevent a cataclysmic euro collapse.
In the debt market, Indian government bonds fell as a central bank official said a cut in the cash reserve ratio is unlikely, raising concerns of a worsening liquidity crunch in the banking system.
The benchmark 8.79% 2021 bond ended at 103.69 rupees, after touching an intraday low of 103.33 rupees and from 103.72 rupees at Tuesday's close.
RBI Deputy Governor Subir Gokarn has signaled that a cut in the mandatory cash holding ratio for banks is unlikely at the central bank's rate-setting meeting on Jan. 24, the Economic Times newspaper reported Wednesday.
Dealers said weekly bond buybacks will lend modest support to the sovereign paper. Barclays Capital added in a report that the choice of liquid paper for Friday's buyback is positive for government bonds.
The RBI late Tuesday said it would purchase up to 120 billion rupees of the 7.83% 2018 bond, 7.80% 2020 bond, 8.28% 2032 bond and the 8.13% 2022 bond Friday.
Source : online.wsj.com