The rupee recovered on Tuesday from its biggest daily fall in two weeks in the previous session, mirroring a recovery in Asian currencies after risk sentiment improved on signs of easing tensions over Ukraine.
The partially convertible rupee closed at 61.845/855 versus Monday’s close of 62.04/05 per dollar.
The gains in emerging market currencies came after Russia’s president ordered troops in military drills in central and western Russia to return to base, increasing hopes of a peaceful solution in Ukraine.
Any resurgence in global risk aversion threatens to reverse the strong dollar inflows into local stocks and debt, which totalled more than $2 billion in February, and helped push the rupee to its highest in more than a month on Friday.
“The rupee has been trading on the risk-on risk-off sentiment. Volumes are thin as people are avoiding trading in volatile markets,” said Naveen Raghuvanshi, a senior forex dealer at DCB Bank.
With no major trigger, the rupee is largely expected to trade rangebound ahead of general elections due by May.
The economy, however, continues to be a matter of concern as contracting industrial output and an investment slowdown dragged India’s economic growth to a worse-than-expected 4.7 percent in the three months to December.
In the offshore non-deliverable forwards, the one-month contract was at 62.25 while the three-month was at 62.98.