Mumbai: The rupee pared its early gains to settle down by 6 paise at 75.72 against the US currency due to concerns over fresh trade tensions between the EU and the US and rising COVID-19 cases.
Forex traders said factors like weak domestic equities and India-China border tension also weighed on investor sentiment.
The rupee opened at 75.61 against the US dollar, but lost ground and closed at 75.72, registering a fall of 6 paise over its previous close.
It had settled at 75.66 against the greenback on Tuesday.
“Local equities fell during late trades and FII outflows led gains in dollar demand. Local stocks indices fell Wednesday tracking a weak opening in European shares and a correction in US index futures amid concerns over rising COVID-19 cases. Rupee is taking resistance near 75.60 and support near 76.00,” said Jateen Trivedi, Senior Research Analyst (Commodity & Currency) at LKP Securities.
Reports suggesting that the Trump administration is examining levying tariffs on around USD 3.1 billion of imports from European countries hit market sentiment.
Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, rose 0.18 per cent to 96.81.
Brent crude, the global oil benchmark, fell 0.87 per cent to USD 42.26 per barrel in futures trade.
Indian stocks also cut short their four-day rally due to weak cues from global markets.
The 30-share index settled 561.45 points, or 1.58 per cent, lower at 34,868.98. The NSE Nifty fell 165.70 points, or 1.58 per cent, to 10,305.30.
Foreign institutional investors were net buyers in the capital market as they bought shares worth Rs 168.96 crore on Tuesday, according to provisional exchange data.
Traders said rupee traded lower Wednesday on likely overseas outflows from local stocks. Moreover, profit booking in domestic equities and dollar demand from gold importers dragged rupee lower, they added.
According to Devarsh Vakil, Deputy Head of Retail Research, HDFC Securities, “the foreign fund inflows have been absorbed by the central bank dollar buying which are limiting the rupee movements.”
Vakil further noted that the dollar has found some support due to softening risk appetite. Forex market shrugged off concerns about the US-China trade situation but the ongoing spike in COVID-19 cases in the US helped the safe-haven greenback.
“Risk appetite is turning positive as economies are opening up giving rise to better-than-expected US and Eurozone economic data. However, the risk of Indo-China border still prevails. In our opinion it won’t escalate but will continue to grapple the market sentiments,” Rahul Gupta, Head of Research- Currency, Emkay Global Financial Services.
Investor sentiment remained fragile amid rising coronavirus cases across the world.
The number of cases around the world linked to the disease has crossed 92.73 lakh and the death toll has topped 4.77 lakh.
In India, the death toll due to COVID-19 rose to 14,476 and the number of infections spiked to 4,56,183, according to the health ministry.
The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 75.7549 and for rupee/euro at 85.3308. The reference rate for rupee/British pound was fixed at 94.3396 and for rupee/100 Japanese yen at 70.67.