Mumbai: The rupee rose to a two-week high on Tuesday, extending gains into one-fifth session, as a sharp fall in the dollar against major currencies and firmer domestic shares boosted sentiment.
The partially convertible rupee ended at the day’s high of 48.47/48 per dollar, its best since 24 August and 0.4% stronger than Monday’s close of 48.66/67. Last week, the rupee had dropped to 49.21, its lowest since 13 July.
Headed higher: The rupee ended at 48.47/48 per $, its best since 24 Aug. Rajkumar / Mint
“The sharp fall in the dollar helped today; stocks also rose despite choppy trading,” a senior dealer with a foreign bank said. “They will be critical to the rupee’s direction in the near term.”
The dollar slumped to its lowest in almost a year against a basket of major currencies as gold rallied above $1,000 (Rs48,700), with traders citing talk of reserve diversification into gold undermining the US currency. Shares rose for a third session and helped double the gains in the main index from a 2009 low in March, as emerging markets climbed to a year’s high on growing global investor confidence.
Foreign fund investments in shares are a key factor driving the stock market and the rupee. Inflows of $8.3 billion so far this year have helped the rupee claw back from record lows of 52.2 in early March.
Last year outflows of at least $13 billion had pushed the rupee down by one-fifth.
Dealers said dollar demand from state banks for sugar imports limited a further rise in the local unit. “There was a lot of dollar buying for sugar imports by state-run banks today,” said Madhusudan Somani, head of foreign exchange trading at Yes Bank Ltd.
Sugar millers may resume signing import deals as local prices have surged, but large-scale buying is unlikely as enough quantity has been already contracted, industry officials said on Tuesday.
One-month offshore non- deliverable forward contracts for the rupee were quoting at 48.44/54, stronger than the onshore spot rate, indicating a bullish near-term outlook.