The rupee lost ground against the dollar on Wednesday, as overseas investors pared their holdings in the Indian unit, though losses were capped by exporters who sold dollar holdings, dealers said. The partially convertible rupee ended at 39.59/60 per dollar, weakening from the previous close of 39.54/55. It hit a near-decade high of 39.16 last month.
"Sentiment on the rupee is a bit weak because the stock market is looking jittery," said the chief dealer with a foreign bank. Capital inflows are a key driver of the stock market's rise and the rupee's near 12 percent rally this year.
With the year-end holiday season approaching, dealers anticipated oil companies would start buying dollars earlier than usual to meet monthly payments, which put further pressure on the rupee. The risk of intervention by the central bank, which could nudge the rupee weaker towards year-end, also weighed on sentiment, dealers said.
The Reserve Bank of India bought $64.5 billion in intervention in the first ten months of the year and is widely seen as having played an active role in the rupee market in November and December too.
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