Mumbai: The rupee continued its positive run this week, settling stronger on Tuesday after moving in a wide band, tracking gains in the euro, positive local shares and decent dollar inflows.
Dealers say the underlying sentiment of the rupee is positive once risk-taking returns in a sustainable way.
“Inherent environment for the rupee is to appreciate, because the India story is still very much on, and so capital flows will be attracted by the steady development and demographic dividend,” said Ashutosh Khajuria, president of treasury at Federal Bank.
The partially convertible rupee ended at 45.625/635 per dollar after see-sawing within a negative to positive band of 45.5602 to 45.7550, and 0.1 percent stronger from Monday’s close of 45.67/68.
The recent pick-up in foreign direct investment (FDI) also suggests a positive bias on the rupee, analysts said.
“Strong FDI inflows in the last three months substantiate our view that April was the start of the recovery phase of FDI inflows,” Nomura said in a report.
FDI inflows in June were at $5.65 billion, the second-highest monthly inflows, following $4.7 billion in May and $1.3 billion in April, Nomura said.
Indian shares rebounded to close up 1 percent on Tuesday, rising for a second straight day, tracking firm global markets and supported by investors covering short positions as well as picking up stocks beaten down in the previous sessions.
“The rupee does get thrown off the rails due to temporary turmoil created by the twin deficits (current and capital account) and a shallow market that cannot absorb high demands on either side, be it exporters or importers,” said Khajuria of Federal Bank.
The euro rose on Tuesday after better-than-expected German manufacturing data outweighed a dismal reading of investor sentiment, although gains looked limited as the overall gloomy outlook for global growth persisted.
The single currency was at $1.4484 when local markets closed, versus $1.4421 on Monday, while the index of the dollar against six major currencies was 73.613 points, from 73.852 points previously.
Traders said U.S. Federal Reserve chairman Ben Bernanke’s speech on Friday in Jackson Hole, Wyoming, would be watched closely for global cues.
The one-month onshore forward premium was at 12.75 points from 12.50 points on Monday, the three-month was at 43.25 points from 41.50 points and the one-year stood at 160.50 points, from 155.
The one-month offshore non-deliverable forward contracts were quoted at 45.79, weaker than the onshore spot rate.
In the currency futures market , the most traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange ended at 45.6675, 45.6725 and 45.6625. The total volume was at $8 billion.