Re washes out early gains, down 16 paise

In a see-saw trade, the rupee washed out its 40 paise gain in early trade to close 16 paise lower at 55.31 against the dollar tracking a weak stock market amid fresh demand of the American currency from importers as a late-round of risk-aversion set in.

The dollar's strength against rivals overseas also weighed on the rupee while continued capital inflows kept the rupee fall under check to some extent, forex dealers said.

At the Interbank Foreign Exchange (Forex) market, the domestic unit commenced higher at 54.90 and immediately touched a high of 54.76 in line with early rally in local stocks as June inflation numbers showed an easing trend.

However, the positive trend was short-lived as the rupee reacted downwards and touched a low of 55.38 as dollar demand outstripped supply, putting the local currency under pressure.

Investors hopes of a rate cut by RBI were dashed as food inflation in June continued to rise in June, traders said.

The Indian stock market benchmark Sensex, which was up by over 68 points in early trade, fell back to end down by 110.39 points, extending the downtrend to four consecutive sessions.

FIIs, which bought stocks worth Rs 257 crore today as per provisional data, helped the the rupee settle at 55.31, a fall of 0.29 per cent or 16 paise from Friday's close of 55.15.

"The rupee reversed its initial strength primarily due to weakness in global currencies and rising inflation at consumer levels.

"The WPI, though better than expected, failed to enthuse the markets," said Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said.

The US Treasury yield is still trading lower at 1.47 per cent reflecting persisting risk aversion in the global market, said Abhishek Goenka, Founder &

CEO, India Forex Advisors.

The dollar index, consisting of six major rivals, was up by nearly 0.34 per cent in late Asian trade.

The New York crude oil was trading below USD 87 a barrel
in Europe today.

Forex dealers said global investors are now focused on upcoming bi-annual Congressional testimony from US Federal Reserve Chairman Ben Bernanke on the economy slated for tomorrow and the day after.

"The safe heaven demand in dollar index weighed on cable currencies and the risk-aversion phase in global markets pushed the rupee lower again," Brahmbhatt added.

The premium for the forward dollar continued to rule weak for last few days on continued receivings by exporters.

"The overall view is still bearish for the rupee.

Importers should take the advantage of the dips coming in the market to cover their open exposures," said Goenka.

The benchmark six-month forward dollar premium payable in December eased to 158-160 paise from last weekend's close of 161-163 paise.

The premium for far-forward contracts maturing in June also declined to 295-297 paise from paise.

The RBI fixed the reference rate for the US dollar at 54.9180 and for euro at 67.1525.

The rupee fell back sharply against the pound sterling at 85.95 from last Friday's close of 85.29 and also turned negative to finish at 67.42 per euro from 67.23 previously.

The rupee also dipped against the Japanese yen to 70.01 per 100 yen from last close of 69.56.

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