Rupee weakens on corporate dollar demand; premiums fall

The Indian rupee declined slightly against the U.S. currency on Wednesday amid cash dollar outflows of a large corporate, traders said, while premiums on the local currency declined.

The rupee last traded at 81.8450 per U.S. dollar, compared with Tuesday's close of 81.6650. The local unit was in a narrow 81.75 to 81.8550 range during the session.

Cash dollar outflows by a large corporate kept the USD/INR pair well bid, a trader said. For a cash dollar outflow, a company would have to buy dollars in spot and conduct a buy/sell cash over spot swap.

It was the third session of muted intraday moves in the rupee. Compared to last week's volatility, rupee has so far traded in a near 30 paisa range this week. The 1-month USD/INR implied volatility has dropped to near 5.5%.

Rupee premiums declined, with the 1-year implied yield falling to 2.10%, near its lowest level in more than a decade. The 1-year implied is down about 30 basis points so far this month.

Focus will be on the minutes of the U.S. Federal Reserve November meeting due for release later in the day. Investors are debating the likely path for U.S. rates after the Fed at that meeting signalled a slower pace of rate hikes. The minutes will likely provide more cues.

The dollar index was little changed at just above 107, ahead of the minutes. Near-maturity Treasury yields and U.S. equity futures were a tad higher.