Rupee closed weaker for a second straight session on Tuesday, after hitting its highest level in over a week e a rlier in the session, weighed down by dollar demand from oil refiners amid lack of any major dollar supplies.
Traders said the Labor Day holiday in the United States on Monday reduced dollar supplies in the local market, weakening the rupee in spite of small demand from oil companies, the largest buyers of dollars in the domestic currency market.
"Oil companies were buying dollars in late trade which pulled the rupee down. The euro was strong, but didn't break any key levels, so the rupee weakened gradually," said Ashish Barua, a senior forex dealer with IndusInd Bank.
"Yesterday being a New York holiday the inward dollars flows were also lower and there were also some big outflows which hurt. I expect the rupee to remain between 55-56 per dollar for the rest of the week, with exporters coming in to sell and help pre v ent any abrupt depreciation."
The partially convertible rupee closed at 55.65/66 per dollar compared to 55.53/54 at Monday's close. The unit rose to 55.37 in opening deals, its strongest since August 24.
The euro rose versus the dollar on optimism the European Central Bank will unveil a plan to tackle the region's debt crisis this week, although gains were capped by concerns the plan may lack detail.
Traders said they would now await the actual outcome of the ECB meeting on Thursday.
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The one-month offshore non-deliverable forward contracts were at 55.95, while the three-month were trading at 56.55.
In the onshore forwards market, the one-month premium shot up to 36.25 basis points versus its previous close of 33.75 bps due to the lack of dollar supply.
In the currency futures market, the most-traded near-month dollar/rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all closed at around 55.8450 with a total traded volume of around $3.5 billion.