A firm local stock market on lower-than-expected inflation numbers amid sustained FII inflows restricted the rupee's fall to some extent, forex traders said.
At the Interbank Foreign Exchange (Forex) market, the local currency commenced lower at 55.49 a dollar from previous close of 55.34. It remained in the negative terrain throughout the day as higher trade deficit for the month of July put the currency under pressure.
With dollar demand rising from importers, the rupee dropped further to a low of 55.79 before recovering some ground on around Rs 258 crore worth of FII stock inflows to settle at 55.65, a drop of 31 paise over yesterday's close value. In last three days, the rupee has fallen over 40 paise.
India's exports in July fell 14.8 per cent to USD 22.4 billion, while imports fell 7.61 per cent to USD 37.9 billion, leaving a trade deficit of USD 15.5 billion. This is wider than USD 10.3 billion recorded in June. Experts said in the long-term, larger trade deficits contribute to a weaker rupee.
"Trade deficit has fallen but not very comfortably," Director General of Foreign Trade (DGFT) Anup Pujari said.
However, a lower WPI inflation number at 6.87 per cent for July capped the gains in US dollar, said Anindya Banerjee, Currency Analyst, Kotak Securities.
The dollar index, consisting of six major currencies, was down by 0.08 per cent on hopes that European Central Bank may intervene in bond markets amid a set of robust GDP data from Germany and France.
Meanwhile, the Sensex shrugged off initial hesitancy and climbed to a fresh five-month high of 17,728.20 today after gaining nearly 95 points. (MORE)
