MUMBAI, March 4 (Reuters) - The Indian rupee on Monday could not hold on to its opening uptick due to dollar buying by public sector banks, which market participants said was probably at the central bank's directions.
The rupee was at 82.8900 to the U.S. dollar by 10:44 a.m. IST, barely changed from 82.90 in the previous session. The domestic currency had opened at 82.86, tracking the move higher in Asian peers following weak U.S. manufacturing data. At least two large public sector banks were buying dollars, pushing the dollar/rupee higher following the dip at open.
The buying by public sector banks was "mostly" the Reserve Bank of India (RBI), but it was difficult to be sure, an FX trader said.
The RBI's regular intervention around the current level is spurring calls that the rupee will continue to remain rangebound.
"Given the aggressive support by the RBI for the USD/INR pair, a narrow trading range is likely to persist, hovering between 82.75 and 83.05/10," Anindya Banerjee, head of research - FX and interest rates at Kotak Securities, said.
"Consequently, both realized and implied volatilities are expected to remain compressed, limiting trading opportunities."
The dollar/rupee's 30-day realized volatility is at just 1% and the one-month implied volatility is at decadal lows.
The dollar index inched lower to 103.84 on Monday, adding to Friday's decline following soft U.S. manufacturing data. U.S. Treasury yields dropped on Friday and equities rallied.
Focus now turns to Federal Reserve Chair Jerome Powell's testimony to lawmakers on Thursday and the U.S. jobs data the following day.
Powell's comments come in wake of investors having significantly scaled back bets on the number of rate cuts the Fed will deliver this year. (Reporting by Nimesh Vora; Editing by Sonia Cheema)
