MUMBAI, Feb 18 (Reuters) - The Indian rupee closed nearly flat on Wednesday after drifting in a narrow range through the session, with traders pointing to both importer and exporter merchant flows alongside intermittent dollar sales by state-run banks.
The rupee closed at 90.6675 per dollar, nearly unchanged from its close at 90.6725 in the previous session.
The currency has hovered in the 90-90.80 band over the last two weeks.
The range-bound trading has pushed near-tenor volatility expectations on the rupee to near one-month lows. The three-month implied volatility, a gauge of future expectations, was last at 4.07%, the lowest since January 21.
"The U.S. trade deal announcement had created expectations of a rupee rally but that hasn't materialised. Now, some market participants expect a return to 92 and weakness beyond that over the medium term," a senior trader at a foreign bank said.
The rupee had hit a record low of 91.9875 in late January as persistent portfolio outflows and then-ongoing trade frictions with the U.S. hurt the currency.
Foreign investors have net bought about $1.5 billion of local stocks so far this month, a turnaround from nearly $4 billion of outflows last month. Traders reckon a sustained recovery in inflows is key to supporting the rupee.
"Broad dollar support internationally will keep the pressure on the rupee, with expectations of RBI capping the downmove. The medium-term outlook seems to be sideways," said Anil Bhansali, head of treasury at Finrex Treasury Advisors.
The dollar index was up 0.2% at 97.3 on Wednesday.
Later in the day, the focus will be on the release of the minutes of the Federal Reserve's January policy meeting for cues on the future path of U.S. interest rates.
Money markets are currently pricing in little over two 25 basis-point cuts from the Fed over the remainder of the year.
Reporting by Jaspreet Kalra; Editing by Sonia Cheema and Mrigank Dhaniwala
Source: Reuters