Mumbai: The rupee pared its initial gains to settle down by 7 paise at 81.33 against the US dollar on Friday as the support from weak dollar was negated by weak domestic markets and gains in crude oil prices.
Forex traders said foreign fund outflows also weighed on investor sentiments.
At the interbank foreign exchange market, the local unit opened at 81.11, but pared the gains and ended at 81.33, down 7 paise over its previous close.
During the day, the local unit witnessed an intraday high of 81.08 and a low of 81.35. On Thursday, the rupee appreciated by 4 paise to close at 81.26 against the US dollar.
“Weak US Dollar index supported the rupee. However, weak domestic markets, a surge in crude oil and FII outflows capped sharp gains,” said Anuj Choudhary – Research Analyst at Sharekhan by BNP Paribas.
The US Dollar declined as US ISM manufacturing PMI slipped into contraction and positive riskier currencies such as Euro and Pound. Euro surged as the German trade surplus topped street estimates.
“We expect the Rupee to trade with a slight negative bias on risk aversion in global markets and fresh outflows by FIIs. However, softness in the greenback may support Rupee at lower levels. Markets may also take cues from US non-farm payroll data today evening, wherein it is expected to show a slower pace of hiring,” Choudhary added.
The dollar index, which gauges the greenback’s strength against a basket of six currencies, fell 0.18 percent to 104.53.
Global oil benchmark Brent crude futures rose 0.17 percent to USD 87.03 per barrel.
Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Thursday as they offloaded shares worth Rs 1,565.93 crore, according to exchange data.
On the domestic equity market front, the 30-share BSE Sensex fell 415.69 points or 0.66 percent to end at 62,868.50, while the broader NSE Nifty advanced 116.40 points or 0.62 percent to 18,696.10.
“Rupee consolidated in a narrow range after appreciating in the last couple of sessions. Less hawkish comments from the Fed Chairman has kept the dollar weighed down,” said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services.
Major crosses continue to get support at lower levels and Yen has been the outperformer in the pack.
“Focus will be on the non-farm payrolls number that will be released in the evening. Better-than-expected data could extend gains for the dollar,” Somaiya said, adding that “we expect the USDINR(Spot) to trade sideways and quote in the range of 81.20 and 81.80.”
According to Dilip Parmar, Research Analyst, HDFC Securities the rupee started with gains but profit booking in domestic equities and higher crude oil prices pushed the local unit in the red.
“The dollar has witnessed a significant slump against major currencies on the back of an increasing market bet of a 50bps rate hike in the December Fed meeting,” Parmar said.
The dollar index has corrected by more than 7 percent since the early November peak and is trading below 105.00 for the first time since July, on expectations that the Fed is nearing the end of its tightening cycle, Parmar noted.
“The near-term bias for the spot USDINR remains bearish as long as it trades below 82, while on the downside one can see 80.74 as a good bargain buying area,” Parmar said.