INDIA RUPEE-Rupee ends flat in first trading day of year, premiums fall

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MUMBAI, Jan 2 (Reuters) – The Indian rupee closed largely unchanged against the U.S. currency on thin volume on Monday as New Year holidays in several markets did lackluster trading.

On the first trading day of the year, the partially convertible rupee ended at 82.7375 per dollar, against its previous close of 82.72.

It touched a near three-week high of 82.5675 early in the day, which traders said was likely due to USD/INR short positions being built.

Overall, however, the flows are “too little” and this has prevented the rupee from finding any direction, said a trader with a private bank. They expect some demand for dollar cash to return on Tuesday when the US market resumes trading.

However, participants agreed that the rupee is likely to find a solid direction in the third week of January, with positions increasing closer to the upcoming Union Budget on February 1.

The rupee should move between 82.40-83 in the near term and high volatility can be expected ahead of the budget, Dilip Parmar, research analyst at HDFC Securities, said in a note.

Meanwhile, USD/INR forward premiums eased, with the one-year implied yield falling below 2% as public sector banks were bid-shy, traders said.

In the broader markets, holidays in much of Asia and developed economies kept things quiet, but a flurry of US data this week could provide some clues over the period.

US manufacturing, services and employment data due later this week will be watched to gauge the extent of the economic slowdown there and how it will shape the path of forward Federal Reserve monetary policy.

Markets are expecting the Fed to ease its stance, with even some rate cuts being priced in for the second half of this year.

“We may see some correction in the dollar in 2023 … and the rupee is likely to trade with an appreciation bias in the 81-83 range by March,” said Aditi Gupta, economist at Bank of Baroda. (Reporting by Anushka Trivedi; Editing by Savio D’Souza)

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