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Although the rupee gave a thumbs up to the assembly poll results, market observers say that the rally is likely to be short-lived as higher US dollar demand from oil marketing companies (OMCs) weigh.
Bankers also said that the market would be cautious before economic data to be released later this week. Market participants worry that the demand from oil companies would only rise since the rupee has now stabilised. The rupee gained more than 12 per cent since September.
The rupee appreciated today by 51 paise, to a nearly four-month high of 60.90 against the greenback intra-day. However, it could not sustain the gains and gave away some gains as the day progressed and the rupee closed at 61.13, after touching an intra-day low of 61.26.
The RBI oil swap window directly offered dollars to the three OMCs for equivalent rupees which they have to return over a period of time.
The three oil companies have to pay back around $15 billion to the RBI over the next six months, which they used up from the oil swap window opened in August. In order to pay back that amount, OMCs are expected to being buying, whenever conditions are favourable, market participants said.
The three OMCs together need around $9 billion a month to pay for their crude oil import bills.
"Apart from regular daily demand from OMCs which is around $400 million, there is backlog demand of $15 billion from the past two months, created due to the RBI's oil window," a state-owned bank's forex dealer said.
Standard Chartered Bank (Mumbai) Managing Director & Head of Fixed Income Trading Agam Gupta agreed saying: "The extra OMC demand is around $15 billion and companies will space out it in the next three to four months".
Bankers also said that the market is keenly awaiting economic data like inflation and index of industrial output.
"We have some economic data like factory output and inflation data, to be released later this week, which the market would look at," said CARE Ratings Chief Economist Madan Sabnavis said.
In the just-concluded assembly polls, the BJP trounced the Congress in three out of four states.
"It was euphoria after elections which led to rupee's gain today. But it is over now. Technically, 60.80 level was a good support which was not touched today," Development Credit Bank Vice President Navin Raghuvanshi said.
After markets rallied to new highs after poll results, a senior forex dealer with a foreign bank said that although the BJP winning in Lok Sabha elections is not assured, the actual impact would be seen only when the government is formed.
Bankers said that a higher dollar demand from oil firms after the RBI closed the separate oil window may put pressure on the rupee.
In August, the RBI had opened a forex swap window for OMCs to meet their entire daily dollar requirements. The window which closed on November 30. The rupee had fallen to an all-time low of 68.85 on August 28.
