The rupee strengthened to its highest in nearly a week on Monday,boosted by gains in the local sharemarket but traders would continue to watch the dollar’s moves versus majors for direction.
At 10 a.m. (0430 GMT),the partially convertible rupee was at 46.15/16 per dollar after touching 46.07,its highest since June 22 and 0.3 per cent above its close of 46.27/28 on Friday.
“The dollar-rupee is getting sold on rallies,premiums are also up. Looks like liquidity will be tight till the second week of July at least,” said Nitesh Kumar,an inter-bank dealer with Development Credit Bank.
The Sensex was trading up 0.7 per cent,with Reliance Industries and Oil & Natural Gas Corp leading the rise.
Foreign fund flows into and out of stocks play a crucial role in determining the rupee’s fortunes. So far in June,foreigners have bought a net $2 billion completely reversing the outflows seen in May,and taking net inflows in 2010 to $6.6 billion.
Economists at IDBI Gilts said that the European debt crisis would cause a cutback in offshore investment,but India stood a better chance to get inflows.
“With asset prices not inflated,domestic demand story intact and significant positive interest rate differential,India should remain a good place to invest for foreign investors,” they wrote in a note last Friday.
The dollar was on the defensive in Asia as investors sought to cut long positions built in favour of the greenback,while the euro held gains as the focus shifted to the sustainability of a US recovery from the euro zone debt woes.
The index of the dollar against six major currencies was largely flat and dealers said they would watch the moves for cues.
One-month offshore non-deliverable forward contracts were quoted at 46.32,weaker than the onshore spot rate.
In the currency futures market,the most traded near-month dollar-rupee contracts on the National Stock Exchange and MCX-SX were both at 46.1450,with the total traded volume on the two exchanges at about $1.3 billion.