Rupee at near 3-week low on broad dollar gains

The rupee dropped to its lowest level in nearly three weeks on Thursday morning, weighed by broad gains in the dollar versus majors while a choppy local sharemarket provided little direction on foreign fund flows.

By 10:15 am (0445 GMT), the partially convertible rupee was at 45.35/36 per dollar, after hitting 45.43, its lowest since December 20 and little weaker than 45.33/34 at close on Wednesday.

"The rupee is moving in line with other Asians, but shares would be watched. We also have the weekly inflation data today which could be a trigger for further direction," said the chief forex dealer at a private bank.

The dollar held steady against the yen and the euro on Thursday, maintaining overnight gains, and could strengthen more after strong private employment data lifted expectations for Friday's US payrolls number.

The index of the dollar against six major currencies was marginally higher. Most Asian currencies too were weaker than the dollar.

Indian shares opened higher but soon gave up gains amid mixed cues from Asia and with banks in focus ahead of weekly food and fuel inflation data due around 0600 GMT.

"The rupee will be quite choppy within a range in early 2011, given we're at a far more wobbly equilibrium on the balance of payments front," said Ananth Narayan G, head of fixed income, currencies and commodities South Asia at Standard Chartered Bank.

"We need sustained capital inflows, even bargaining for the fact that January-March current account deficit tends to be lower," he added.

Foreign investors bought a record USD 29.3 bn worth of shares in 2010, compared with USD 17.5 bn net inflow in 2009. In the first two trading sessions of 2011, foreign investors pumped USD 269.5 mn into shares.

Central bank data at end-December showed, India's current account deficit in the September quarter widened to a record high of USD 15.8 bn. However, robust capital inflows helped the overall balance of payments remain positive.

Narayan said large capital inflows during January to March could help the rupee rise towards 44.50-44.00, and would provide a good opportunity for importers to buy dollars for a reversal in trend towards 46 by April-June.

"Medium term -- yes, would play for INR weakness, but in the short run, a bout of strength cannot be ruled out," he said.

Traders said oil importers could continue to step up their purchase of the US unit on concerns of any possible supply disruption from Iran amid a payment dispute between India and the Islamic Republic.

One-month offshore non-deliverable forward contracts were quoted at 45.58, 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 at 45.47 and 45.4750 respectively, with the total traded volume on the two exchanges at about USD 1.3 bn.