* Rupee ends at 54.69/70 per dlr vs 54.6150/6250 on Tues
* Heavy dlr buying by oil firms, short-covering hurt rupee
* USD/INR may test/breach 56 by March-IndusInd trading head
By Swati Bhat
MUMBAI, Jan 16 The Indian rupee weakened for a
second straight session on Wednesday as sustained dollar demand
from oil firms and weak regional risk sentiment prompted
investors to cover short dollar positions.
The rupee was also pressured after the central bank Governor
Duvvuri Subbarao was reported by media as saying inflation was
"still quite high", denting hopes of a 50 basis point rate cut
this month and sending shares and bond prices lower.
Traders expect the rupee to see some support in the near
term as analysts still expect a 25 bps cut at the central bank
policy review on Jan. 29, which could sustain the strong foreign
fund flows seen since last year.
Still, analysts warned strong gains were unlikely, with some
even expecting falls, as the current account and fiscal deficits
as well as high inflation continue to weigh.
"By March I expect USD/INR to test 56 and possibly breach
that as the high CAD, high global crude and gold prices and
ratings issues are all likely to contribute to a weak INR," said
Rajeev Mahrotri, head of forex and debt trading at IndusInd
The partially convertible rupee closed at 54.69/70
per dollar versus its previous close of 54.6150/6250. It moved
in a band of 54.68 to 54.8875 during the session.
Traders said oil firms, the biggest buyers in the domestic
market, continued to buy the greenback to meet import
commitments as global crude prices rose after robust U.S. retail
A fall in shares after two days of gains also pressured the
rupee as rate-sensitive stocks, such as ICICI Bank, retreated on
"I think equities are headed higher and we will see decent
equity inflows but all this not enough to prevent higher USDINR
in the short term. I would also rule out a sustained repo rate
cutting cycle for now as inflation is still in the 7 percent
handle," Mahrotri said.
In the onshore forwards, the 6-month forward premium rose to
186 points from 183 points at previous close while the 1-year
climbed to 342 points from 333 points on Tuesday, as sentiment
remained positive on the central bank's dollar credit facility
In the offshore non-deliverable forwards, the one-month
contract was at 55.02 while the three-month was at 55.59.
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 all closed at around
54.8450 with a total traded volume of $4.8 billion.
(Editing by Jijo Jacob)