Rupee slips on profit-taking, flows watched

REUTERS[ WEDNESDAY, JULY 04, 2007 10:25:48 AM]

MUMBAI: The rupee eased on Wednesday as dealers booked profits after the Indian unit had rallied to a one-month high in the previous session, though capital inflows into local stocks were likely to limit losses. At 9:50 am, the partially convertible rupee was at 40.56/57 per dollar, slipping from 40.5500/5675 on Tuesday, when it had touched a one-month peak of 40.44, before it was driven back by suspected central bank intervention. The rupee has been trading in a 40.50-41.25 range since early May, with the central bank widely seen buying dollars each time the rupee tests 40.50. "People were taking profits this morning, especially after the central bank showed its resolve in defending 40.50 yesterday," said the chief dealer with a private bank. The rupee hit a nine-year high of 40.28 in late May, but was knocked off its peak by suspected central bank intervention. Still, dealers said that strong capital inflows into the stock market, which is trading at record highs, were likely to bolster the rupee. Foreign funds have poured $5.7 billion into Indian equities in 2007 after investing about $8 billion in 2006. The rupee has risen by more than 9 per cent against the dollar this year. "Dollar-rupee was better offered yesterday on IPO related inflows and a better equity market performance. Watch for a break below 40.50 this week, which could trigger stops and likely spark a sell-off towards 40.30," The Royal Bank of Scotland said in a note on Wednesday.