The rupee strengthened on Friday, tracking gains in the euro and local shares as sovereign debt crisis contagion fears ebbed on an ambitious Greek rescue package.
The rupee strengthened on Friday, tracking gains in the euro and local shares as sovereign debt crisis contagion fears ebbed on an ambitious Greek rescue package, but caution before the Reserve Bank of India's policy review on Tuesday limited the rise.
The euro rallied to a two-week high against the dollar in Asia on Friday after euro-zone officials gave their financial rescue fund sweeping new powers to solve Greece's debt troubles, easing fears the country's debt crisis would spread.
At 11:45 a.m. (0615 GMT), the partially convertible rupee, was 44.3600/3625 per dollar, 0.36% stronger than its 44.515/525 close on Thursday.
So far in trade, the unit has moved in a 44.3450-44.49 band and traders said dollar demand from oil companies for import payments is likely to cap the rupee's rise near 44.30.
Oil is India's biggest import item and domestic oil firms are the largest purchasers of the dollar in the local forex market.
"We have the Reserve Bank of India's policy just around the corner and oil (company's dollar) buying is also happening. So despite a huge rally in the euro, we have seen only modest gains in the rupee," said a senior foreign exchange dealer at a private-sector bank.
The RBI is expected to raise its key policy rate by a further 25 basis points at its quarterly review on July 26, after inflation quickened in June, the latest Reuters poll showed on Wednesday.
The single currency was at $1.4404 versus $1.4182 when the domestic forex market closed on Thursday, while the index of the dollar against six major currencies was at 74.052 points against 74.914.
European leaders have 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 benchmark BSE Sensex rose over 1.2 percent on Friday, with financials leading the gains on the euro zone plan.
Gains across rupee's Asian peers also aided the local unit.
The dollar was punished across the board in Asia as the encouraging news out of Europe contrasted with confusion over how much progress Washington is making to avoid a U.S. default.
The one-month onshore forward premium was at 23.50 points from 24 points on Thursday, while the three-month was at 72.75 points from 70.25 points and the one-year was at 233.75 points versus 228.75.
One-month offshore non-deliverable forward contracts were quoted at 44.50, 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 44.3850, with the total volume at $3.02 billion.
(Reporting by Aditya Phatak; editing by Malini Menon)