Mumbai, July 26: The rupee pared its initial gains to settle flat at 79.78 on Tuesday due to firm crude oil prices and forex outflows amid expectations of a sharp hike in interest rates by the US Federal Reserve. At the interbank forex market, the local unit opened at 79.73 against the greenback and moved in a tight range of 79.72 to 79.81 during the day.

Forex markets registered a wait-and-see approach ahead of Wednesday's Federal Open Market Committee (FOMC) meeting, which could favour a lower volatility environment in dollar-crosses, according to Dilip Parmar, Research Analyst, HDFC Securities. Moreover, weaker domestic equities and higher crude oil prices also weighed on the domestic unit. Rupee Fall Against Dollar, Leaves Parents Worried, Domestic Tourism Benefits.

"Dollar traders are cautious as the market is eager to see if the softer economic data has changed the Fed's hawkish rate path. Traders are giving renewed attention to energy prices after Russia once again reduced the flow of piped gas to Germany," Parmar said, adding that Spot USD/INR is expected to trade in the range of 79.30 to 80.10.

"Rupee consolidated in a narrow range in the last few sessions. Dollar retraced from higher levels and that supported the rupee," said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services. Somaiya further noted that the focus has now shifted to the US Fed meeting. "Expectation is that the central bank could raise rates by 75 bps and maintain a hawkish stance. We expect the USDINR (spot) to trade with a positive bias and quote in the range of 79.50 and 80.05 in the short term," Somaiya said.

According to Jateen Trivedi, VP Research Analyst at LKP Securities, the rupee witnessed range-bound sessions with flat trades around 79.80 as the dollar index held rates above USD 106 and showed some recovery to 106.80. Further, the rupee shall carry momentum based on the commentary of FED Chair Jerome Powell, Trivedi said, adding that "the rupee range can be seen at 79.70-79.95." The dollar index, which measures the greenback's strength against a basket of six currencies, was up 0.31 per cent at 106.81. Brent crude futures, the global oil benchmark, rose 1.71 per cent to USD 106.95 per barrel.

On the domestic equity market front, the BSE Sensex ended 497.73 points or 0.89 per cent lower at 55,268.49, while the broader NSE Nifty declined 147.15 points or 0.88 per cent to 16,483.85. Foreign institutional investors remained net sellers in the capital market on Tuesday, offloading shares worth Rs 1,548.29 crore, as per exchange data.

(This is an unedited and auto-generated story from Syndicated News feed, LatestLY Staff may not have modified or edited the content body)