The rupee rose for a second session on Friday as traders unwound long dollar positions in anticipation of a pick-up in foreign inflows after global moves to ease the pressure on European banks. Some large companies also cashed in their dollar earnings, helping the rupee pull further away from a record low hit last week, traders said.
The central bank's action was a major move and market is very dollar-long. So there might be some stop losses being triggered given the move we have seen in the rupee, said Ashtosh Raina, Head of Foreign Exchange Trading at HDFC Bank.
On Wednesday, the U.S. Federal Reserve, the European Central Bank and the central banks of Canada, Britain, Japan and Switzerland said they would lower the cost of existing dollar swap lines by 50 basis points from December 5 and arrange bilateral swaps to provide liquidity for other currencies.
At 11:38 a.m. (0608 GMT), the partially convertible rupee was up 0.2 percent at 51.37/38 per dollar, adding to gains of 1.4 percent on Thursday that was its biggest rise since May 18, 2009.
It looks like rupee could very well touch 51 (per dollar), Raina said.
Traders said the focus was now on the U.S. non-farm payrolls data due 1330 GMT for cues on global economic trajectory. The data is expected to show an increase of 122,000 jobs and a steady unemployment rate of 9.0 percent.
The rupee, which fell 6.7 percent in November, touched a record low of 52.73 on November 22 and continues to be the worst performing currency among its major Asian peers. Domestic macro-economic factors like slowing economic growth, climbing oil import bill and a widening trade deficit are formidable challenges, traders said.
Finance Minister Pranab Mukherjee said on Friday that Foreign Direct Investments this year were higher than 2010 but outflows of portfolio investments were a concern.
India's manufacturing sector expansion slowed in November as factory output grew at its slowest pace in nearly three years, although export demand should provide some cheer for factories, a survey showed on Thursday.
The one-month offshore non-deliverable forward contracts were quoted at 51.68, indicating a bearish near-term outlook. The one-month onshore forward dollar premium and the three-month were steady at 27.75 points and 67.25 points respectively and the one-year premium was at 194.50 points from 186.50.
In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange, the United Stock Exchange and the MCX-SX were all at 51.62. The total volume was at $1.07 billion.
The Euro struggled to make headway on Friday, consolidating this week's gains as traders stuck to the sidelines ahead of the crucial U.S. jobs report and event-packed week that could prove decisive for the currency bloc.