July 28, 2011 / 11:04 IST
The rupee pulled back from a near three-year high on Wednesday, dragged by a retreating euro on renewed concerns on Greece's debt crisis, chipping away comfort from the Reserve Bank of India's dollar-inflow boosting hefty rate increase on Tuesday.
Losses in local shares and dollar demand from local oil refiners for import payments as well as defence-related dollar purchases also weighed on the rupee, traders said.
The partially convertible rupee ended at 44.08/09 per dollar, 0.2% stronger from Tuesday's close, but weaker from the day's high of 43.8550 -- a level not seen since Aug. 29, 2008.
"The huge swing we saw in the rupee today was a rare occasion indeed and unless the debt impasse in the US is sorted out, we could see rupee rising to 43.80 soon," said Naveen Raghuvanshi, an associate vice president at Development Credit Bank.
The dollar climbed from record lows against the Swiss franc and three-week troughs versus the euro on Wednesday, as investors trimmed bearish bets on the greenback given no fresh news on negotiations to raise the US debt ceiling, but analysts expected the dollar's rally to be short-lived.
Deeply divided Republican and Democratic leaders are scrambling to find common ground before Aug. 2, when the US government is expected to hit its USD 14.3 trillion borrowing limit that could trigger a default and roil world markets.
The rupee is also expected to strengthen on hope of higher foreign investment in local shares and debt as the RBI's rate increase widened the interest rate differential between India and advanced economies.
Foreign funds have bought USD 1.7 billion worth of local shares and USD 867 million of debt so far in July.
But, the RBI's rate increase has not augured well for domestic equities, which in-turn clipped rupee's rise, dealers said.
Indian shares fell for the second session on Wednesday, with financials under pressure, and as investors stayed cautious on expectations of more monetary tightening after the central bank's aggressive rate increase on Tuesday.
The rate increase was the 11th since March 2010 as it battled persistently high inflation amidst slowing domestic growth and uncertain global demand.
The euro was at USD 1.4449, after touching a high of USD 1.4536, compared with its USD 1.4480 local close on Tuesday.
German Finance Minister Wolfgang Schaeuble on Wednesday said that one summit of the euro zone would not be enough to solve the region's debt crisis.
Last week, European leaders has agreed on a bailout package that would make it easier for Greece to reduce debt more sustainably by easing terms of loans and by making Greek bond investors shoulder some of the burden.
The index of the dollar against six major currencies was up 0.32% at 73.709 points versus with 73.650 points at the close of local currency market on Tuesday.
Most Asian currencies rose against the dollar and offered some solace to the rupee, traders said.
The one-month onshore forward premium was at 24.75 points from 25.25 on Tuesday, while the three-month was at 75.75 points from 74.25 and the one-year was at 246.25 points versus 246.50.
One-month offshore non-deliverable forward contracts were quoted at 44.20, 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 the MCX-SX were both at 44.3100 and the United Stock Exchange were at 44.3250. The total volume stood at USD 13.5 billion.
