The rupee pared initial gains to close marginally down by 2 paise at 74.26 against the US dollar on Wednesday amid sustained foreign fund outflows and heavy selling in domestic equities.
Forex traders said the Indian rupee failed to find a foothold as there are still concerns over the impact of the coronavirus pandemic on the global as well as domestic economy.
At the interbank foreign exchange market, the local currency opened higher at 73.98. During the day, it shuttled between a high of 73.92 and a low of 74.42 against the greenback.
The domestic unit finally finished at 74.26, down 2 paise over its previous close.
"Rupee fell against the US dollar amidst continued meltdown in the equity markets and sustained foreign fund outflows. Dollar showed some strength as investors pursued most liquid currency as concerns about economic shutdowns from the coronavirus continued to dent risk appetite," said Gaurang Somaiyaa, Forex & Bullion Analyst, Motilal Oswal Financial Services.
According to provisional market data, foreign investors pulled out Rs 5,085.35 crore on a net basis from capital markets on Wednesday.
Somaiyaa further said that "continuous efforts by major central banks to provide liquidity in the system and stabilize the economy is increasing the volatility in the market. We expect the rupee (Spot) to trade in range of 74 and 74.60."
Meanwhile, the dollar strengthened by 1 per cent against global peers in spot markets as investors look for safe investments amid growing fears of recession due to coronavirus outbreak.
The British pound tanked 1.9 per cent to hit its lowest level since 1985 against the dollar as investors sold UK assets panicked by shutdowns due to the coronavirus outbreak.
Crude oil prices also plunged due to energy demand woes. New York's WTI crude tanked 12 per cent to an 18-year low and Brent tumbled 6 per cent.
Investor sentiment remained fragile amid concerns over the impact of coronavirus outbreak on the global economy, forex traders said.
The number of deaths around the world linked to the new coronavirus has topped 8,000.
"Rupee started with the gain of 0.4 per cent per dollar but failed to hold the gains along with domestic equities," said V K Sharma, Head PCG & Capital Markets Strategy, HDFC Securities.
Sharma further said that rupee managed to cut losses, even after aggressive selling by foreign funds, mainly on back of the RBI's intervention.
"The Reserve Bank of India has once again stepped in with interventions targeted at ensuring enough liquidity and stability in financial market, it has announced to conduct open market operation (OMO) of Rs 10,000 crore on March 20," he said.
The 10-year government bond yield was at 6.30 per cent.
On the domestic equity market front, the 30-share BSE Sensex closed 1,709.58 points or5.59per cent lower at28,869.51. On similar lines, the broader NSE Nifty plummeted 498.25points, or5.56per cent, to end at 8,468.80.
The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 74.0309 and for rupee/euro at 82.6585. The reference rate for rupee/British pound was fixed at 90.5368 and for rupee/100 Japanese yen at 69.50.
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