Rupee recovers 4 paise to close at 76.16 as border tension keeps investors on edge

The rupee pared early losses to settle 4 paise higher at 76.16 against the US dollar on Wednesday tracking gains in domestic equities and a weakening US dollar.

According to forex traders, border tension with China, foreign fund outflows and concerns over rising COVID-19 cases are weighing on investor sentiment.

The rupee opened weak at 76.21 at the interbank forex market, but recouped losses and closed at 76.16 against US dollar, higher by 4 paise over its last close.

It had settled at 76.20 against the US dollar on Tuesday.

"The geopolitical tension between India and China has brought back the risk-off mood in investors. We don’t expect the dispute to escalate and both the sides will contain it, till then the market will remain skittish," Rahul Gupta, Head of Research- Currency, Emkay Global Financial Services.

Gupta further said that "any escalation or uncertainty will lead to a sharp bull-run in USD/INR spot. Until 76 level doesn’t break in USD/INR spot, it will continue to remain afloat. The immediate support lies around 75.75, and resistance around 76.50."

Domestic stocks closed lower after a see-saw session. The 30-share BSE Sensex closed down 97.30 points, or 0.29 per cent, at 33,507.92. The broader NSE Nifty settled 32.85 points, or 0.33 per cent, down at 9,881.15.

Foreign institutional investors were net sellers in the capital market as they sold shares worth Rs 1,478.52 crore on Tuesday, according to provisional exchange data.

Brent crude futures, the global oil benchmark, rose 0.68 per cent to USD 41.24 per barrel.

The dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.02 per cent to 96.93.

"Indian rupee traded in a small range while investors await any update on the skirmish that happened on India-China border," said Devarsh Vakil, Deputy Head of Retail Research, HDFC Securities.

Vakil added that market participants are focusing on comments from diplomats on border issues, any escalation will lead to the rupee weakness but if the conflict is diffused, quick gains can be seen.

"Uncertainty on the India-China border kept most market participants on the edge," said Gaurang Somaiyaa, Forex & Bullion Analyst, Motilal Oswal Financial Services.

A total of 20 Indian Army personnel were killed during a violent clash with Chinese troops in eastern Ladakh's Galwan Valley on Monday night, escalating the already volatile border standoff between the two sides.

Somaiyaa further said that the focus will be on US housing numbers and Fed Chairman's testimony which could provide further trigger to the dollar.

Meanwhile, the Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 75.8410 and for rupee/euro at 85.9602. The reference rate for rupee/British pound was fixed at 96.0445 and for rupee/100 Japanese yen at 70.54.