MUMBAI (Reuters) - The rupee strengthened to its highest level in more than a week on Tuesday, tracking gains in domestic shares and the euro, while the lack of large dollar demand from oil firms also helped.
The rupee has been largely range-bound in August, given the absence of significant domestic triggers, with global risk factors having a bigger impact.
At home, the government has yet to announce any meaningful fiscal reforms or other action to attract foreign investments, while data continues to signal a slowing economy but high inflationary pressures.
India said on Tuesday July annual consumer price inflation slowed slightly in July to 9.86 percent, but a drought in parts of the country pushed food prices higher.
“Selling from custodian banks tracking equities and the positive euro helped the rupee today. I expect a range of 55.35 to 55.75 tomorrow,” said Vikas Chittiprolu, a senior foreign exchange dealer with state-run Andhra Bank.
The partially convertible rupee closed at 55.5650/5750 per dollar, after touching 55.4550, its strongest since August 13 and above its close of 55.73/74 on Friday.
Gains tracked an improvement in risk demand that sent the BSE Sensex up 1.1 percent to its highest close in five months as Infosys (INFY.NS) rose after a U.S. court dismissed a lawsuit from an employee, while consumer good stocks gained on signs of improving rainfalls.
The euro rose to a near two-week high against the dollar and a six-week peak versus the yen on Tuesday, lifted by renewed talk the European Central Bank could take strong action to ease Spanish and Italian borrowing costs.
Volumes on Wednesday could be particularly low, traders warned, after unions called for one million banking employees to start a two-day strike, though trading is unlikely to be completely halted..
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 55.58 with the total traded volume at around $3 billion.
Editing by Rafael Nam