Rupee eased away from a recent nine-year high on Wednesday, as investors pared positions in the local unit on concerns over central bank intervention, and on dollar demand from oil refiners for month-end payments.
At 9:35 am, the rupee was at 40.555/565 per dollar, slipping from Tuesday's 40.48/49, which was its strongest close since May 1998, and well clear of Monday's nine-year intra-day high of 40.28.
"The central bank has been blocking the rupee at 40.50, so the market is likely to be a rangebound today," said a dealer with a private bank, who expects the rupee to trade in a 40.50-40.60 range.
Dealers said there were traces of Reserve Bank of India (RBI) intervention when the rupee touched 40.46 on Tuesday, but said the central bank's dollar buying was relatively light compared with an estimated $600-$650 million it bought on Monday.
Lower inflation gave the central bank more elbow room to intervene, they said. Data on Friday showed annual inflation eased to an eight-month low of 5.27 per cent in mid-May.
The rupee is Asia's best performing currency against the dollar this year, gaining more than 9 percent on strong capital inflows into the fast-growing economy.
Dealers said the rupee was likely to appreciate in coming weeks, buoyed by a wave of capital inflows slated for Indian equities, including an IPO by property developer DLF Ltd, that is looking to raise an Indian record of $2.4 billion.
"With around $10 billion of IPOs slated for next month in India, and foreign interest likely to be substantial, the rupee-positive flow picture does not look like changing any time soon," Shahab Jalinoos, currency strategist with ABN AMRO Bank in Singapore, said in a note.
"Given the continued sensitivity to inflation, we do not see a high likelihood of the RBI trying to draw a line in the sand if flows come through strongly in June," added Jalinoos, who expects the rupee to test 40.00 in June.
