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The rupee pared initial gains and settled 6 paise lower at 77.66 against the US dollar on Friday, in line with a muted trend in domestic equities.
Forex traders said persistent foreign fund outflows and widening trade deficit weighed on the local unit.
At the interbank foreign exchange market, the rupee consolidated in a narrow range. It opened at 77.47 against the greenback and touched an intra-day low of 77.66 and a high of 77.47.
It finally settled at 77.66, down 6 paise over its previous close of 77.60.
"The rupee erased opening gains as equities turned down while crude oil prices remained firm. Foreign fund outflows and widening trade balance weighed on the local unit," said Dilip Parmar, Analyst, HDFC Securities.
India's merchandise exports in May rose by 15.46 per cent -- the slowest in the last 15 months -- to USD 37.29 billion, while the trade deficit ballooned to USD 23.33 billion, as per official data released after market hours on Thursday.
Parmar further said, "We believe spot USD-INR will consolidate in the range of 77.44 to 77.74. Short-term traders should wait for the range breakout above 77.74 which can pave way for 78 and 78.30 while breaking below 74.44 push it towards 77." The dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.03 per cent lower at 101.79.
Global oil benchmark Brent crude futures dipped 0.47 per cent to USD 117.06 per barrel.
On the domestic equity market front, the 30-share BSE Sensex ended 48.88 points or 0.09 per cent lower at 55,769.23, while the broader NSE Nifty declined 43.70 points or 0.26 per cent to 16,584.30.
Foreign institutional investors remained net sellers in the capital market on Friday, offloading shares worth Rs 3,770.51 crore, as per stock exchange data.
"Rupee traded range-bound in a sideways-volatile market between 77.50-77.85, the dollar index traded weak below USD 103 for the entire week, which helped rupee not to fall below 78.00 but crude prices at higher levels with volatile session did not help rupee to go above 77.50," said Jateen Trivedi, VP Research Analyst at LKP Securities.
Trivedi further said the Reserve Bank of India (RBI) policy next week shall give further cues for the rupee's direction.
According to Sriram Iyer, Senior Research Analyst at Reliance Securities, "For the week, the Rupee depreciated marginally amid the probability of more aggressive rate hikes by central banks to curb the impact of inflation." Meanwhile, Asian and emerging market peers were mixed with China and UK investors remaining away from the markets on account of local holidays, leading to thin volumes.
However, investors' focus will shift to the RBI's MPC meeting next week. As of now, investors are expecting a 25 bps rate hike, he noted.
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