The rupee depreciated 9 paise to 66.31 against the US dollar in early trade on Thursday, in line with the weak trend seen in most Asian currency markets. The domestic currency had climbed 33 paise to close at 66.22 on Wednesday amid sustained selling of US dollars by banks and exporters. This was the second consecutive day of gains for the rupee.
However, the rally halted on Wednesday as most Asian currencies were trading lower against the greenback. The Chinese yuan declined 0.06 per cent to 6.47 a dollar level.The dollar index, which tracks the movement of greenback against a basket of six major world currencies, rose 0.04 per cent to 94.53.
Improved foreign inflows to equity markets have so far helped rupee gain and cut losses against the US dollar year-to-date. Data available with depository NSDL suggested foreign potfolio investors (FPIs) have infused Rs 5,800 crore worth of dollars into domestic equities this month.
“The rupee strength is certainly a fall out of the capital flows that we have seen. Now the problem is that the inflows that we have seen in the recent past are portfolio flows. Any strength in the currency that is dependent on capital flows is not very conducive, particularly as far as exports are concerned.