Rupee holds up well to dollar's rally, almost unchanged week-on-week

An attendant at a fuel station arranges Indian rupee notes in Kolkata

By Nimesh Vora

MUMBAI (Reuters) - The Indian rupee was little changed on a week-on-week basis, avoiding the losses that its Asian peers incurred due to the rally in the dollar index, aided by dollar sales by foreign banks.

The rupee was marginally down at 82.04 to the dollar on Friday and was up about 0.1% for the week. The local currency was in 81.60 to 82.30 range this week.

The rupee reached this week's low of 82.30 on Wednesday on the back of comments by U.S. Federal Reserve Chair Jerome Powell that opened the door to a larger 50 basis points rate hike at this month's meeting. U.S. yields and the dollar index jumped on Powell's comments.

The rupee managed to recover, helped by persistent dollar sales by a large foreign bank, likely on behalf of its custodial and offshore clients, according to traders.

The rupee mostly shrugged off Powell's signal of higher and possibly faster interest rate hikes, said Amit Pabari, managing director at CR Forex.

It is likely that foreign portfolio and investment flows were helping the rupee "have the upper hand among Asian currencies", Pabari said. He pointed out that Indian equities have received inflows of 140 billion rupees ($1.71 billion) this month compared with outflows in January and February.

In contrast to the rupee's performance this week, the Korean won declined 2% and the offshore Chinese yuan lost 1%. The dollar index is up 0.7% this week so far.

The outlook for Asian currencies next week hinges on the U.S. jobs report due later in the day and the U.S. inflation data due next Tuesday.

Powell signalled this week that U.S. central bank's decision to hike rates by 25 bps or 50 bps at March 21-22 meeting will depend on incoming data.

($1 = 82.0320 Indian rupees)

(Reporting by Nimesh Vora; editing by Eileen Soreng)