Mumbai: The Indian rupee posted its best weekly gain in nearly nine months on Friday boosted by robust portfolio investments and tracking broad losses in the dollar versus major currencies overseas.
The partially convertible rupee closed at Rs44.47/48 per dollar after hitting 44.46, its strongest since 30 April and 1.1% above Wednesday’s close of Rs44.94/95.
The foreign exchange market was closed on Thursday for half yearly closing of banks’ accounts.
“Asia on the whole has strengthened against the US dollar, our story remains identical,” said Ananth Narayan G., head of fixed income, foreign exchange and commodities South Asia at Standard Chartered Bank in Mumbai.
“Capital inflows and prospects of more in the near future is helping, with possibly oil and import covering seen.”
The rupee gained 3.4% in the September quarter when foreigners moved more than $11 billion into Indian stocks, chasing potentially better returns in the fast-expanding economy.
Robust foreign fund inflows drove Indian shares to 33-month highs on Friday while strong auto sales in September pushed key auto stocks higher helping the benchmark index post its fifth weekly gain.
Net equity inflows in 2010 now stand at a record $19.2 billion, above last year’s $17.5 billion.
“Our March 2011 outlook remains at 44.00. Looks we’re almost there already, so may be we have a downside risk on our forecast, but must remember though that our c/a deficit etc. remains an issue,” Standard Chartered’s Narayan said.
“Looks like we will overshoot on INR strength, based on capital inflows in the short run, but then we should have a pullback in USDINR, once the flow has gone through.”
India’s current account deficit widened in the June quarter from the previous three months due to higher merchandise trade gap and lower earnings through services, roughly in line with market expectations.
Dealers said they see the next resistance at 44.30 levels, before the unit heads towards 44.
“There was no end to dollar selling today. It is possible to touch 44.3000 next week, given the flows the market is witnessing,” said Hari Chandramgathan, a foreign exchange dealer with Federal Bank in Mumbai.
“The euro also seems to be heading towards 1.3900 levels.”
The dollar sank to an eight-month low against a currency basket on Friday as investors took speculation US manufacturing due later in the day would be weak and a chance to sell the greenback.
“There has been no intervention in the market so far, its just the oil firms and corporates who came to cover since 44.50 levels were broken,” a senior dealer with a large state-run bank said.
The central bank usually buys or sells dollars via state-run banks to prevent extreme volatility in the market but doesn’t protect any particular level. It has however, not intervened in the market between December and July, latest data showed.
One-month offshore non-deliverable forward contracts were quoted at 44.66, weaker than the onshore spot rate.
In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange, MCX-SX and United Stock Exchange all closed at 44.6725, with the total traded volume on the three exchanges at about $8.4 billion.