MUMBAI (Reuters) - The rupee climbed higher on Wednesday helped by foreign inflows into local stocks as strong economic data from Europe and the United States boosted global risk hunger, but dollar demand from local oil refiners is seen limiting the rise.
Paradoxically, the dollar has been underpinned by the sanguine U.S. data and the Fed’s better economic outlook, as these have diminished chances of further US monetary easing. This is limiting the rupee’s gains.
At 10:05 a.m. (0435 GMT), the rupee was at 49.87/88 to the dollar, stronger than Tuesday’s close of 49.93/94.
“Dollar strength against some majors is keeping the rupee under pressure, despite good inflows,” said a foreign exchange dealer with a private sector bank.
Traders remain cautious before the February inflation data due at 0630 GMT.
The data is expected to provide clues on growth and interest rates in Asia’s third largest economy, where the central bank will announce its rate decision on Thursday and the government will on Friday detail its budget proposals for fiscal year starting in April.
“We could see a rangebound rupee before the budget. It is likely to move in a band of 49.80 to 50.00,” said a currency trader at a foreign bank.
Economists expect headline inflation of 6.79 percent in February from a year earlier, faster than January’s 6.55 percent, a Reuters poll on Tuesday showed.
Expectation of a reduction in lending rate by the Reserve Bank of India had diminished after the bank unexpectedly slashed banks’ cash reserve ratio by 75 basis points last week.
A sharp unexpected rise in January factory output has added to the reasons for the central bank to postpone its rate cuts.
Although the strong factory data has brightened the outlook on foreign flows, continuous dollar demand from oil companies to pay for their oil imports, which have become costlier, has hit the rupee, traders said.
Foreign funds have invested over $12.8 billion in Indian equities and debt so far this year, data from the capital markets regulator Securities and Exchange Board of India showed.
But any slide in the local currency was likely to be prevented by the RBI’s intervention in the currency market.
The bank has been actively intervening in the currency markets over the past few months to support the rupee, which touched a record low of 54.30 on December 15.
Data on Monday showed the RBI said it sold a net $7.3 billion in January in the spot market, a tad lower than $7.8 billion in December.
The one-month offshore non-deliverable forward contracts were at 50.27.
In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and on the United Stock Exchange were all around 50.06, on a total volume of $501 million.
Reporting by Aditya Phatak; Editing by Rajesh Pandathil