Rupee weakens on importer dollar demand.

MUMBAI: The rupee weakened on Tuesday as importers started buying dollars after the local unit rose earlier in the day to touch a 19-month high.

The dollar's strength against the euro added to the rupee's weakness back home, dealers said. The partially convertible rupee ended at 44.45/46 per dollar, after opening at 44.35, a level last seen on Sept. 8, 2008.

It had closed at 44.44/45 on Monday. The rupee moved in a wide band of 44.35/44.59 during the day. "Importers' dollar demand, dollar's strength overseas coupled with a flat closing of the stock market against expectation of good rally led to the rupee's decline," said R.K. Gurumurthy, treasurer, ING Vysya Bank.

"Some technical buyback happened," he added. Indian shares fluctuated during the day with the 30-share BSE index ending marginally up 0.03 percent. Dealers expect the rupee to have a strengthening bias going ahead due to the large capital inflows, but the gains may be limited if the Indian central bank intervenes in the foreign exchange market. The rupee rose 2.7 percent in March, its biggest monthly gain since May last year, on the back of foreign portfolio inflows of about $4.4 billion. The Reserve Bank of India (RBI) latest data shows it had not intervened in foreign exchange market in December and January.

"After the sharp move in the last few days, there is a possibility of RBI buying dollars and infusing rupee liquidity. They may also do the same in forward dollar market to avoid any immediate infusion of rupee liquidity," said Ananth Narayan G, head of rates, credit, South Asia at Standard Chartered Bank. The one-year forward dollar premium was down at 3.01, off from day's low of 2.96 percent and compared to Monday's close of 3.06 percent due to exporter dollar sale. The premium rate had fallen to 2.84 percent on Monday, a level last touched on March 31. "The forward rate will be soft going ahead.

The rupee view has changed and exporters are selling (forward dollars) as they see the rupee appreciating because capital flows now look to be quite sustaining in nature," said a foreign bank dealer. On Wednesday, the rupee is expected to strengthen with the undertone on capital inflows remaining positive. The Indian unit is seen opening stronger at 44.40 and may move in 44.35-44.60 band on Wednesday.

A Reuters poll of forex strategists on BRIC currencies last Tuesday showed the rupee strengthening to 43.53 against the dollar by March 2011, supported by buoyant growth in Asia's third-biggest economy. One-month offshore non-deliverable forward contracts were at 44.43/53, near the onshore spot rate. In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange was 44.5475 and MCX-SX at 44.5450 with total volume at $7.3 billion.

Source : The Economic Times