The rupee pared its initial gains to settle down by 52 paise at a nearly two-week low of 81.85 against the US dollar on Monday weighed down by weak domestic markets, forex outflows and a rise in crude oil prices.
Forex traders said a weak dollar in the overseas market cushioned the downside for the local unit.
At the interbank foreign exchange market, the local unit opened at 81.26, but pared the gains and ended at 81.85, down 52 paise which is its biggest single-day loss in over six weeks.
During the day, the local unit witnessed an intraday high of 81.25 and a low of 81.87. On Friday, the rupee had settled down by 7 paise at 81.33 against the dollar.
The dollar index, which gauges the greenback’s strength against a basket of six currencies, fell 0.10 per cent to 104.44. Global oil benchmark Brent crude futures rose 1.82 per cent to USD 87.13 per barrel.
According to Anuj Choudhary – Research Analyst at Sharekhan by BNP Paribas, the Indian rupee depreciated on Monday on weak domestic markets and higher crude oil prices. However, the weak US dollar cushioned the downside.
The US dollar declined on optimism over reopening in China. However, upbeat job market data cushioned the downside. The US non-farm payrolls added 2.63 lakh jobs in November, beating estimates of 2 lakh jobs, Choudhary said.
“We expect the rupee to trade with a negative bias on weak domestic markets and recovery in crude oil. Any fresh outflows by FIIs may also weigh on rupee. However, a weak dollar may support the rupee,” Choudhary said.
He further noted that “investors may remain cautious ahead of RBI’s monetary policy outcome on Wednesday. There are expectations of a 35-bps rate hike.” “Volatility increased ahead RBI policy weighed on the local unit and restricted the appreciation bias. Dollar index was seen in the positive range of 104.10 to 104.70 which pressured rupee lower,” said Jateen Trivedi, VP Research Analyst at LKP Securities.
The Reserve Bank may opt for a lower rate increase of 25-35 basis points in lending rates amid retail inflation showing signs of moderation and the need to push growth, according to experts.
The RBI will come out with its next bi-monthly policy review on December 7, at the end of a three-day meeting of the Monetary Policy Committee (MPC) beginning Monday.
Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Monday as they sold shares worth Rs 1,139.07 crore on net basis in cash market, according to exchange data.
On the domestic equity market front, the 30-share BSE Sensex fell 33.9 points or 0.05 per cent to end at 62,834.60, while the broader NSE Nifty advanced 4.95 points or 0.03 per cent to 18,701.05.
