MUMBAI: The rupee continued its precarious ride, plumbing further on Tuesday, despite the broader equity market making a sharp rally towards the second half.
After closing at a record 84.11 to the dollar Monday, the currency plunged to 84.13 in opening and recouped a bit to close at 84.1225 on Tuesday as persistent foreign fund outflows and a muted trend in domestic equities dented investor sentiment in the earlier part of the trade. And nobody believes this is the bottom.
Forex traders said all eyes are on the US presidential polls and markets are bracing for potential volatility over the coming days, especially with the Federal Reserve's monetary policy meeting scheduled later this week.
At the interbank forex exchange, the rupee opened at 84.13 against the greenback, down 2 paise over its previous close when it plumbed 4 paise to settle at 84.11.
According to Anil Kumar Bhansali, the head of treasury at Finrex Treasury Advisors, the pressure on the rupee is due to the uncertainty about the outcome of the ongoing US presidential elections that had rattled stock markets across the world yesterday while the domestic market is under persistent foreign fund outflows. Till the poll results are conclusively out, the volatility will continue, he added.
Meanwhile, the Dalal Street made a smart rally on value buying after the deep cut it saw in the morning trade and closed sharply higher with the Sensex rallying 694 points on late buying in banking, steel and oil & gas shares amid firm trends in global equities.
The broader Nifty climbed 217.95 points or 0.91 percent. The Sensex had hit a low of 78,296.70 and Nifty plumbed 23,842.75 in early trade. But value buying in the afternoon session helped indices recover losses and closed in the green.
The value buying was driven by huge cuts on Monday with foreign investors offloading equities worth Rs 4,329.79 crore while domestic institutions bought shares Rs 2,936.08 crore, according to exchange data.
This takes their pullout to the tune of a Rs 1 trillion since the beginning of October. While the net FPI selling was $11.4 billion in October, so far in November, the net outflows are of $0.6 billion.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.03 percent higher at 103.91.
Forex traders see the rupee trading in a narrow range i as the strong dollar weighs on it amid rising crude prices. The rupee has been facing selling pressure ahead of the US presidential election as participants turned cautious. Some traders are of the view the unit can plumb further and may find support at 84.25 and if it breaches this level, the next support is at 84.50.
The rupee is expected to see higher volatility this week--triggered by the US elections Tuesday and the interest rate announcement by the Fed on Thursday.
According to Rahul Kalantri of Mehta Equities, the rupee will remain volatile this week amid volatility in the dollar index and the equity markets and the rupee-dollar pair may trade in the range of 83.5500-84.70 levels. Until foreign funds stop selling their equity and debt holdings, the rupee will be under pressure and this would also bring down equities.
Jateen Trivedi of LKP Securities said the rupee is into the selling mode right now mainly because foreign funds are pulling money from the domestic market as they see more value in the beaten down Chinese stocks.