MUMBAI: The Indian rupee hit its highest level in 15 months before giving up most of its gains on Thursday as importers stepped up dollar purchases to lock in gains from this week's rally in the local currency.
The partially convertible rupee rose to a high of 45.55 per dollar, its strongest since Sept 23, 2008, before closing at 45.68/69, 0.4 percent above its previous close of 45.85/86. At the day's high, the rupee was up 2.3 percent this week.
"There was a lot of dollar selling by exporters today. Information technology firms, big corporates, all were selling. There were good dollar inflows from the non-deliverable forwards market, as well as interbank flows," said Madhusudan Somani, head of foreign exchange trading, at Yes Bank.
The one-month offshore forward contract was quoted at 45.65/71, marginally stronger than the onshore spot rate, prompting foreign banks to sell dollars and buy rupees.
Usually when the gap between the two rates widens, banks with access to both the markets buy dollars at a cheaper rate in the offshore market and sell them onshore in order to arbitrage the price difference, boosting the rupee in the spot market.
"45.80 was a very strong resistance which has been broken today, so the next immediate target now is 45.50 and then 45," said a senior dealer with a foreign bank. Dealers said the dollar's broad drop in the previous session and gains in other regional currencies were the main triggers for the rupee's rally in early trade, after which offshore dollar inflows picked up.
"Importers and oil refiners came in to buy dollars following the rally. There was major buying once the rupee breached the 45.60 mark, pushing it lower again," a dealer with a state-run bank said. The dollar's recovery against major currencies in late trade also weighed on the local unit.
The index of the dollar against six majors was trading up 0.5 percent. The yen fell against the dollar and other currencies on Thursday after Japan's new finance minister said he wanted it to weaken further, stirring talk the government may be more inclined to stem any sharp yen rise.
Local shares snapped a 4-session rally and fell 0.5 percent as the strong rupee dented outsourcers such as Infosys Technologies and Tata Consultancy, which earn most of their revenue from exports. The weakness in the stock market indirectly prevented further gains in the rupee as well.
Foreign fund inflows into the local share market are a key factor determining the rupee's fortunes. In 2009, inflows of more than $17 billion, helped the rupee surge 12.2 percent from a record low of 52.2. The unit gained 4.7 percent on the year.
In the currency futures market, the most traded near-month contracts on the National Stock Exchange and MCX-SX closed at 45.7325 and 45.7300, respectively, with the total traded volume on the two exchanges hitting a daily record high of $7 billion.
Source : The Economic Times