Rupee recovers from 1-week low, ends 7 paise higher at 64.08

Fear and panic gripped currency market sentiment initially on concerns that the government's additional borrowing this fiscal may lead to a breach in the fiscal deficit target for the first time in four years.

Weighed down by heavy dollar demand, the home currency plunged to an intra-day low of 64.27 before staging a rebound.

The government on Wednesday said it has decided to make additional borrowing of Rs 50,000 crore this fiscal through dated securities, a move that may put burden on the fiscal deficit target of 3.2 per cent of the GDP.

Further, the Goods and Services Tax (GST) collection in November fell to the lowest since the tax regime was put in place, adding some near-term worries.

But the finance ministry maintained that there will be no change in net borrowing as envisaged in the Budget for 2017-18, which largely helped forex market to stabilise and soothed the frayed nerves a bit.

The rupee had ended at a fresh one-week low yesterday.

The broad-based US dollar weakness also supported the recovery momentum with the key US Dollar Index tumbling to a fresh 3-month lows.

Meanwhile, global crude prices continued its surge lifted by strong data from top importer China amid thin trading activity ahead of the New Year weekend.

Brent crude, an international benchmark, is trading at USD 66.33 a barrel in early Asian trade.

Meanwhile, local bourse surrendered early strong gains to end lower, extending the slide for the second straight day on profit-taking even as participants squared off positions on expiry day of December series contracts in the derivatives segment.

The flagship Sensex dropped almost 64 points to end at 33,848.03, while Nifty lost 13 points at 10,477.90.

After a relatively steady start at 64.15, the rupee suddenly turned highly volatile and plunged sharply to hit a low of 64.27 at the Interbank Foreign Exchange (forex) market following initial strong dollar demand from importers and some foreign banks.

However, overcoming the initial wobble, the home currency made a resounding comeback in mid-afternoon trade and moved in the tight range with positive bias most part of the day despite sell-offs in local equities.

It finally settled down the day at 64.08, showing a good gain of 7 paise, or 0.1 per cent.

The home unit had lost 10 paise in the last two-day fall.

The RBI, meanwhile, fixed the reference rate for the dollar at 64.1716 and for the euro at 76.5631.

The dollar index, which measures the greenback's value against a basket of six major currencies, was down at 92.42 in early trade.

On the global front, the dollar slipped to a four-week low against a basket of currencies pressurised by a recent dip in US 10-year bond yields.

In cross-currency trades, the rupee moved down further against the pound sterling to settle at 86.10 from 86.06 per pound and drifted against the euro to end at 76.45 from 76.27 yesterday.

The local currency also dropped against the Japanese yen to conclude at 56.79 per 100 yens from 56.66.

Elsewhere, the pound sterling rebounded to a near two-week high level against the US dollar, extending its overnight bullish breakout.

In forward market today, premium for dollar declined owing to mild receiving from exporters.

The benchmark six-month premium payable in May eased to 118-112 paise from 116-118 paise and the far forward October 2018 contract also slipped to 254-256 paise against 250-252 paise previously.