The rupee slipped to an intraday low of 69.85 on Wednesday.
The Sensex rose as much as 136.64 points to touch 38,701.52 in intraday trade, while the Nifty regained the 11,600 mark during the session.
The dollar index – which gauges the greenback against six major peers overseas – rose as much as 0.06 per cent during the session. It was last seen trading 0.01 per cent higher during the session.
The Reserve Bank of India (RBI) on Tuesday set a cut-off at its second dollar/rupee swap auction at a much higher than expected premium – a sign that the system is flush with dollar liquidity that banks are struggling to find buyers for.
“The RBI received total bids worth $18 billion indicating that the market has a lot of paying interest. The aggressive bids most likely came in from a large corporate looking to hedge long-term dollar liabilities,” said IFA Global, a forex advisory firm. “With dollar glut continuing, volatility in forwards is likely to persist.”
Analysts see a limited upside in the rupee in the near term.
“Crude oil prices are rising continuously in the international market. The dollar index is also rising and that is a sign of worry… In the near term, the rupee might depreciated till 70.50 in the spot market,” said Rushabh Maru, research analysts at financial services firm Anand Rathi.
The RBI has been conducting the auctions in a bid to absorb the dollars in the system and prevent a sharp rise in the currency while also providing rupee liquidity to the banks.
International crude oil prices fell on Wednesday amid signs that global markets remain adequately supplied. Brent crude futures – the global benchmark for crude oil – were last seen trading 0.51 per cent lower at $74.13 per barrel on Wednesday.