The rupee appreciated by 5 paise to 51.62 against the US dollar on the Interbank Foreign Exchange market in early trade today as the American currency fell against the euro and other currencies overseas.
Besides gains in the euro and other currencies against the US dollar,a higher opening in the equity market on foreign funds buying further supported the rupee,dealers said.
The rupee had ended lower by 37 paise to close at nearly three-month low of 51.67/68 against the US currency in yesterday’s trade following heavy dollar demand from importers.
Meanwhile,the BSE benchmark Sensex rose by 18.23 points,or 0.11 per cent,to Rs 17,169.18 points in early trade.
The Indian rupee nudged up in low volume trade on Tuesday,helped by some rise in the euro,as most investors remained on the sidelines before the central bank’s rate decision,eyeing for clues on growth,inflation trajectory and fund inflows.
The Reserve Bank of India is expected to cut rates for the first time in three years to revive sagging growth,though inflation pressures and a heavy fiscal deficit are of concern. The decision is due around 11 a.m. (0530 GMT).
It is a very thin market. Nobody wants to take a chance,said a currency trader with a large textile exports company.
At 10:31 am (0501 GMT),the rupee was at 51.62/63 to the dollar,marginally stronger than Monday’s close of 51.68.
The rupee is likely to strengthen to 51.20 per dollar level in case of a more than 25 basis points (bps) cut,traders said.
But a 25 bps cut should not cause much reaction since it is largely priced in,said a currency trader with a foreign bank.
But if the RBI confounds the market by holdings rates steady,the currency may slide towards 52 per dollar,where some traders hope the central bank will be ready to shore up the currency.
The RBI has been intervening intermittently in the currency market for the past many months. Data showed last week the bank had bought $1.1 billion and sold $1.4 billion in the spot markets in February.
The one-month offshore non-deliverable forward contracts were at 51.98.
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 were all at around 51.75,on a total volume of $383 million.