March 22, 2011 / 12:38 IST
The rupee was marginally stronger on Tuesday, supported by positive local shares, a strong euro and higher regional peers.
Dealers are also turning more optimistic about the rupee's outlook in the near term on expectations of robust dollar inflows through external commercial borrowings (ECB), remittance and investments by foreign institutional investors (FIIs).
Foreign funds had sold Indian shares worth a net USD 825.95 million in February, while they bought a net USD 319.95 million this month until March 20. So far in 2011 they have sold USD 1.89 billion of equity.
"The outlook for the rupee in the short term is strong, given that dollar inflows are expected to be strong with companies getting funds via ECBs , and remittance in this quarter is higher than usual due to the Middle-East crisis," said Rohan Naik, head of foreign exchange trading at Standard Chartered Bank in Mumbai.
At 11:09 am (0539 GMT), the partially convertible rupee was at 44.9600/9700 per dollar, stronger than Monday's 45.0050/0150 close. The unit is expected to move in a 44.90-45.05 range intraday.
However, demand for dollars by oil importers may play spoilsport and put a lid on the rupee's gains during the day, dealers said.
"Oil price is the only risk factor to the rupee's near-term outlook. India is more at risk to Middle East crisis due to its dependence on oil rather than the Japan crisis," StanChart's Naik said.
Brent crude futures were supported near USD 115 on Tuesday by supply concerns triggered by the spreading unrest in the Middle East, while uncertainty about demand from the world's No 3 consumer Japan capped gains.
Oil is India's biggest import and domestic oil refiners are the main purchasers of dollars in the local forex market.
Indian shares extended gains to 1% on Tuesday morning, with Reliance Industries leading the rise, tracking firm Asian markets.
The euro made the most of the dollar's woes to reach highs not seen since November at USD 1.4240, and the Australian dollar stormed back to USD 1.0060.
Most Asian currencies were stronger t han the US dollar on Tuesday.
The index of the dollar against six major currencies was up 0.02% at 75.414.
The one-month onshore forward premium was at 30.25 points, lower than Monday's close of 32, while the three-month premium was at 80.75 points versus its previous close of 83 and the one-year was at 287.50 from previous 289.
The one-month offshore non-deliverable forward contracts were quoted at 45.25, weaker than the onshore spot rate.
In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange were all at 45.0400, with the total traded volume at about USD 1.06 billion.
