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Rupee ends weaker despite yuan rally as oil companies, importers capture dollar dip

A man counts Indian currency notes inside a shop in Mumbai

By Jaspreet Kalra

MUMBAI (Reuters) - The Indian rupee ended weaker on Monday despite a rally in the Chinese yuan and a softer U.S. dollar as the domestic unit's strength was capped by dollar demand from oil companies and importers, traders said.

The rupee ended at 83.03, compared with 82.9450 in the previous session. The onshore Chinese yuan rallied by about 0.7% to 7.31 against the U.S. dollar, while the Thai baht led gains among other Asian currencies.

The dollar index fell 0.2% to 104.6 in Asia and Brent crude futures also softened slightly to $90.39 per barrel.

Although the yuan received a boost from a stronger yen, it rallied even further after China's foreign exchange self-regulatory body said it would resolutely fend off risks of the yuan weakening too much.

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Meanwhile, while the rupee weakened on Monday, India's benchmark Nifty 50 index hit an all-time high above 20,000.

"Fundamentally, people are long on the dollar," a foreign exchange trader at a state-run bank said.

The rupee presented attractive dollar buying levels for importers and fresh long USD/INR positions on Monday, the trader added. While the rupee rose to 82.8375 in morning trade, it subsequently shed much of its gains in the face sustained U.S. dollar demand.

"Over the rest of the week, the rupee should hold between 82.40-82.50 to 83.20," said Abhilash Koikarra, head of forex and rates at Nuvama Professional Clients Group.

India and the United States will release inflation data this week, but Koikarra expects the rupee to have a muted reaction to the domestic data, while the U.S. inflation print could be a notable trigger.

Any upside surprises on U.S. inflation could reinforce that U.S. policy rates are likely to stay elevated, hurting currencies like the rupee.

India's inflation rate is expected to remain above the Reserve Bank of India's upper tolerance band of 6% at least until October, according to a Reuters poll of economists.

(Reporting by Jaspreet Kalra; Editing by Sonia Cheema)