There will also be a tussle between foreign institutional investor (FII) inflows into the system, which will help the rupee to appreciate, and interbank squaring up of short positions, which will force the rupee down.
The rupee closed on Friday at 45.3850/3950 against the dollar, down from a 38-month closing high of 45.26/27 on Thursday. It had dropped to 45.4425 intra-day on Friday.
The rupee had opened on Monday at 45.30. There have been inflows of around more than $300 million into the market of foreign institutional inflows into the market.
The forex reserves for the week ended October 3 showed a dip to $87.73 billion to $89.327 billion a fall of $1.59 billion. The fall is attributed to the outflow of Resurgent India Bond money out of the markets.
According to dealers around $2.2 billion of RIB funds may have gone out of the system as the week ended October 3 had seen major FII inflows into the system.
According to dealers, the rupee has got a technical support at the 45.25/26 level. However in case of heavy inflows both from exporters and FII, the rupee may appreciate.
Given the levels of discount in forwards, inter-bank market will square its short positions and go long. This will force the rupee to go down while FII inflows into the system will have an opposite effect,
Forward premiums
Premiums on the forward dollar dropped sharply on Friday as banks rushed to do buy-sell swaps fearing the RBI
