Rupee edges lower due to dollar demand from foreign banks

The Indian rupee weakened on Wednesday, pressured by dollar demand from large foreign banks, even as most of the local unit's Asian peers ticked higher.

The rupee was at 83.2475 against the U.S. dollar as of 10:00 a.m. IST, lower by 0.07 per cent compared to its close of 83.1925 in the previous session.

The dollar index was little changed in Asian hours at 101.5 but continues to hover close to its weakest level since late July. Most Asian currencies were up between 0.1 per cent to 0.5 per cent on the day.

But the rupee weakened slightly due to dollar demand from large foreign banks, likely on behalf of custodian clients, a foreign exchange trader at a state-run bank said.

The price action on the rupee is likely to be driven by "merchant flows" as speculative activity remains muted towards the year-end, the trader said.

Amid muted volatility "due to the holiday season, the (rupee's) intraday range will be confined to 10-15 paisa," said Amit Pabari, managing director at FX advisory firm CR Forex.

India's current account deficit fell more than expected in the July-September quarter, to $8.3 billion, 1 per cent of GDP, from $9.2 billion, or 1.1 per cent of GDP, in the preceding quarter.

The median forecast in a Reuters poll of 18 economists was for a deficit of $9 billion.

"With the capital account surplus barely edging over the current account deficit, the overall (balance of payments) stayed in a small surplus, but should improve," Barclays said in a note.

Meanwhile, rupee forward premiums inched up with the 1-year implied yield rising to 1.78 per cent, its highest in over two months.

Forward premiums have been supported by rising bets that the US central bank will soon start easing policy rates. Investors are pricing in a very high probability of a rate cut in March.