The last week saw a mixed trend as far as the rupee movements against the dollar is concerned.  In the first half of the week, the rupee was firming up against the dollar and in the later half it was marginally down against its previous levels.  Due to tight liquidity conditions and higher call rates most banks refrained from taking long positions in the dollar and so the rupee was firming up.  But later in the week, on covering of short positions by the banks, the rupee went down marginally against the greenback. The movement of the rupee vis-a-vis the dollar and the Euro is graphically presented below :

June 23rd, Friday

The rupee ended the day at 44.675/68, up 2 paise from its previous close.  The rupee opened at 44.665/675 and was soon quoting at 44.6825/6925 in early trades.  The reason was the usual month-end demand from the importers.  The exporters were also holding back their dollar receivables and watching to see if the rupee would fall further.   There was not much of a support for the rupee from the state run banks.  The forward premia was tracking the higher call rates due to tight liquidity conditions. The 3-month forward premia closed at 3.25% against its previous close of 3.21%.

June 22nd, Thursday

The rupee ended the day slightly down at 44.655/665 to a dollar on Thursday against its previous close of 44.64/6454.  The rupee opened the day unchanged and started to weaken amid strong dollar demand by some banks and touched an intra-day low of 44.69 when the erstwhile seller of dollars, the SBI, also turned buyer.  Banks usually go short on dollars on Wednesdays and buy them back before the end of the week to take the customary benefits of the weekend swap differentials. The rupee weakened because these banks wanted to cover their short positions and there was huge demand for dollars in the market. And in such a situation, when the SBI also bought dollars, there was no respite for the rupee.  Later in the day, the market went long on dollars on rumours that a large gas firm was looking to buy dollars.  But there was no such demand and just before the close of the day, there was a rush to square the long positions, which helped the rupee to recover from its intra-day lows.

June 21st, Wednesday

The rupee ended the day, marginally up against the greenback on Wednesday.  The rupee opened at 44.645/655, and traded in a narrow band of Rs. 44.64-44.6525 and finally closed at 44.64/645 marginally up from the previous day's close.  There was not much of dollar demand in the market.  With the RBI's reverse repo cut-off rate at 13.5% and the call rates at 13%, majority of the banks didn't have any long dollar positions. Coupled with this, some exporters liquidated their dollar receivables which provided support to the rupee.  The RBI also fixed it reference rate at Rs.44.64 to a dollar against the previous day's rate of Rs.44.67. The rupee also strengthened against the Euro  and the Pound. It closed sharply higher against the Euro at 42.28/30 against its previous close of 42.65/68.

June 20th, Tuesday

The rupee ended the day, marginally up at 44.645/65 against its previous close of 44.65/66 after trading in a very narrow range.  The rupee opened the day at 44.645/66 and remained steady in most of the deals. There was little demand from importers and banks. The hard stand taken by the RBI to tighten the liquidity seemed to be working with no banks having long dollar positions.  The cut-off rate for the reverse repo auction on Tuesday was fixed at 14% by the RBI and therefore there were not a lot of banks who had long dollar positions.  Exporters were also there in the market selling their dollar receivables with a general perception that the RBI would not let the rupee fall any further.  So the dollar was offered for most part of the day to meet whatever little demand that was there and that helped the rupee to close marginally higher.

June 19th, Monday

The rupee closed firm against the Dollar on Monday at 44.65/66 as against its previous close of 44.695/705 after tight liquidity conditions in the money market forced banks to make dollar sales.  Rupee opened steady on Monday but soon it started gaining ground, after the RBI announced the results of its reverse repo auction.  It fixed the cut-off rate for these auctions at 13.50%, which made it too expensive for the banks to hold dollars long and borrow money at such a high rate.  This prompted them to unwind their long dollar positions.  Also, there was not much of a demand for dollars from the importers.  All this helped the Rupee to recover and closed at the level of 44.65/66.

Rajneesh Mittal