The Indian rupee notched small gains for a second straight day on Tuesday but persistent cash and forward dollar demand kept the local unit wedged in a tight band.
The rupee ended at 82.6050 to the U.S. dollar, compared with 82.67 in the previous session. The local currency moved in a 82.5650-82.65 band during the session.
It is “quite evident” from the price action over the last two sessions that there is “real” dollar demand both on a cash basis and in forwards, a sales person at a private sector bank said. Oil companies have been quite active in buying dollars, said Anil Bhansali, head of treasury at Finrex Treasury Advisors.
The rupee opened stronger due to weakness in the dollar following disappointing U.S. services data. The dollar index , which was lower in early India trading, recovered to end 0.1% higher.
U.S. yields fell following the data, pushing rupee premiums higher. The 1-year USD/INR implied yield rose by 5 bps to 1.77%.
Traders are awaiting the Reserve Bank of India‘s policy decision on Thursday, the U.S. inflation reading and the Federal Reserve’s policy review next week.
They reckon that the U.S. inflation data is the most important for the USD/INR. A higher-than-expected inflation reading could mean that the Fed could opt to hike rates next Wednesday.
The RBI, meanwhile, is widely expected to keep the key interest rate at 6.5%.
