Mumbai: The rupee strengthened as gains in stocks and commodities prices damp risk aversion, spurring demand for emerging market assets.
The currency has rebounded almost 2% from an all-time low reached on 3 March as stock exchange data showed purchases of Indian equities by foreign funds exceeded sales last week for the first time in a month.
The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials climbed 3% this week.
“Money is coming back into markets worldwide as investors are turning slightly more optimistic about a global economic recovery,” said Sanjay Arya, Mumbai-based treasurer at state-owned Bank of Maharashtra. “The rupee could benefit as we see signs of an improvement in capital inflows.”
The rupee rose 0.3% to 51.29 to the dollar at close in Mumbai, according to data compiled by Bloomberg. That is the highest since 27 February.
The currency may reach 51.20 in the coming days, Arya said.
The Bombay Stock Exchange’s benchmark index, the Sensex, climbed 2.5% this week, adding to last week’s 5.2% gain. The MSCI Asia-Pacific Index of regional shares rose for a fourth day, its best run in at least two months.
Funds based abroad bought a net $26 million (Rs133.6 crore) of Indian stocks last week, compared with net sales of $543 million in the previous five-day period, according to data released by the Securities and Exchange Board of India, the country’s capital markets regulator.
Offshore contracts indicate the rupee will trade at 51.67 to the dollar in a month, compared with expectations for a rate of 51.75 on Tuesday.
Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.
Implied volatility on one-month dollar-rupee options measured 11.7%, the lowest in a month, Bloomberg data show.
Traders quote implied volatility, a gauge of expected swings in exchange rates, as part of option prices.