Rupee Ends Lower on Dollar Demand for Import Payments.

The rupee ended lower on Tuesday as strong dollar demand from local oil companies offset a rise in the share market and some recovery in the euro.

The rupee ended at 49.36/37 to the dollar, compared with Monday's close of 49.19/20.

The unit dipped to 49.4200 in early trades, with demand for riskier assets taking a hit after ratings agency Moody's warned it may cut the triple-A ratings of France, Britain and Austria.

"There was some big demand from importers," said a foreign exchange trader with a state-owned bank.

Oil refiners are the largest buyers of dollars in the local currency market as India -- Asia's third largest economy -- imports more than 80 percent of its oil requirements.

The state government of Maharashtra, where Mumbai is located, has declared a bank holiday on Thursday for local elections, and consequently most deals in the local currency market on Tuesday will now be settled on Friday.

The rupee was largely unmoved after data showed January headline inflation rose a slower-than-expected 6.55 percent from a year earlier.

The rupee was supported by views the Reserve Bank of India will step in to support the currency if it slides sharply.

The RBI sold more than $9 billion in the spot and forwards market in December, its biggest intervention in nearly three-and-half years.

But there are concerns that the rupee's rebound in 2012 may be cut short by the Indian economy's weak fundamentals such as yawning twin deficits and still uncomfortably high price pressures.

"The central bank has been able to reduce volatility (in the currency market) but we can expect the demand bias for dollars to catch up due to trade deficit situation," said Ajay Marwaha, head of treasury trading at HDFC Bank.

The RBI had imposed severe cuts on trading limits of banks to control speculation after the currency touched an all-time low of 54.30 on Dec. 15. The bank followed up with steps to boost dollar inflows.

"We can expect the rupee to move in a band of 49 to 51. And the longer it stays the better for bringing stability into the market," Marwaha said.

The rupee has strengthened by more than 7.5 percent versus the dollar in 2012 driven by robust foreign inflows, after plunging nearly 16 percent in 2011.

Foreign funds have invested $7.75 billion in Indian debt and equity so far in 2012, according to data from Securities and Exchange Board of India.

The euro rose to a session high against the dollar, while German bund futures fell after German ZEW surprised on the upside and bolstered expectations that Europe's largest economy was holding up despite the debt crisis.

Indian shares rose 0.4 percent to their highest close in more than six months, helped by a late bout of short-covering.

One-month offshore non-deliverable forward contracts were at 49.71.

In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all ended around 49.52, on total volume of $3.89 billion.

Source : economictimes.indiatimes.com