The Indian rupee rose slightly on Tuesday, tracking gains in most Asian currencies after hitting an all-time low the previous day, but demand for dollars from importers will cap gains, traders said.
The rupee was trading at 83.95 against the US dollar at 10 a.m., up slightly from the previous day's closing price of 83.9725, its lowest level ever.
Outflows from domestic equities and demand for dollars from domestic companies weighed on the rupee after the unwinding of carry trades last week. Foreign investors sold more than $500 million of domestic equities on Monday, provisional exchange data showed.
The rupee has fallen nearly 0.3 percent so far in August, further expanding its decline from the previous month.
But traders said the currency had not fallen sharply due to regular interventions by the Reserve Bank of India. “With the rupee struggling to strengthen despite the US dollar's weakening, authorities have been selling dollars aggressively to prevent the rupee from hitting new lows above 84.00/USD,” DBS Bank said in a note. Asian currencies were broadly up 0.1-0.4 percent, with the dollar index slightly higher at 103.1. The dollar/rupee forward premium rose, with one-year expected yields rising 1 basis point to 2.03 percent.
The premium for the distant future is supported by the expectation that the Federal Reserve will begin easing interest rates from September.
Investors currently expect the Fed to cut interest rates by just over 100 basis points this year.
The U.S. wholesale price index, due to be released later in the day, will be closely watched and comes ahead of Wednesday's closely watched consumer price index release.
