Rupee retreats from new 5-1/2-month high; seen firm

The rupee weakened on Thursday, retreating from a new 5-1/2 month high touched earlier, weighed by the dollar's strength overseas and choppy local shares.

Traders, however, expect the Indian unit to remain firm in the near-term on the back of robust dollar inflows, and see strong support at 43.95 a dollar in the near term.

The partially convertible rupee closed at 44.20/21 per dollar, after touching 44.0950 earlier in the day, its highest since October 15. On Wednesday, it had ended at 44.16/17.

"We saw 43.95 levels only during the Coal India IPO, so think the 43.95-44.11 range will support the dollar for now. Think we will eventually bounce back to 45.50-46.00 levels," said Ananth Narayan G, head of fixed income, currencies and commodities at Standard Chartered Bank in Mumbai.

Indian shares fell for a third straight day and closed 0.1% lower on Thursday , as investors took a breather after a steep rise in March, but robust foreign fund inflows affirmed a bullish undertone.

Foreign funds have purchased USD 2.98 billion worth of Indian shares since March, after being net sellers in January and February.

The index of the dollar against six major currencies was up 0.18% at 75.649 points at the close of the local forex trade, compared with 75.571 points at the close of local trade on Wednesday.

The euro was steady on Thursday after the European Central Bank raised its benchmark rate by 25 basis points to 1.25%, for the first time since July 2008, but was off its multi-month peaks with investors edgy that expectations for more tightening this year could be dampened.

At the end of the local forex trade, the euro was about USD 1.4280.

The one-month onshore forward premium was at 24.50 basis points, down from 26.25 on Wednesday, the three-month was at 79.00 basis points versus 79.75 and the one-year was at 297.50 basis points versus 301.25.

The one-month offshore non-deliverable forward contracts were quoted at 44.39, 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 at 44.3575, 44.3550 and 44.3550 respectively, with the total volume at about USD 6.37 billion.