Mumbai: India’s rupee strengthened for a third day on speculation a global stocks rally will damp risk aversion and revive investment in emerging market assets.
The currency climbed to a five-week high and local shares gained after US home sales rebounded and treasury secretary Timothy Geithner said there are encouraging signs a global financial crisis is easing.
Overseas funds’ equity purchases exceeded sales in March after net sales in February, data from Securities and Exchange Board of India (Sebi) show.
“The performance of equity markets across the world suggests investor confidence is returning,” said Sudarshan Bhatt, chief currency trader at state-owned Corporation Bank in Mumbai. “The rupee is drawing strength from that and I think it will continue in the near term.”
The rupee advanced 0.6% to 50.355 per dollar at close, according to data compiled by Bloomberg. It earlier reached 50, the strongest since 25 February, and has rebounded more than 3% since reaching a record low of 52.1850 on 3 March.
The Bombay Stock Exchange’s Sensitive Index of shares jumped 4.5% to the highest close since 4 November, and the MSCI Asia Pacific Index surged 4.7%. Asian stocks surged, giving the regional benchmark index its biggest gain in five months, as US auto sales rose from a 27-year low and treasury secretary Timothy Geithner said economies are showing traction.
Offshore contracts indicate traders bet the rupee will trade at 50.5 to the dollar in a month, compared with expectations of 51.01 on Wednesday.
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.
“Indonesia, and even India, China to some extent, have a domestic demand story,” Sebastien Barbe, head of emerging- market research and strategy at Calyon in Hong Kong said in an interview with Bloomberg Television. “For the rupee, we can have something like 8 to 10% appreciation in the next three to four quarters.”
The Group of 20 summit convenes in London on Thursday amid signs that the world economy is stabilizing.
US President Barack Obama, UK Prime Minister Gordon Brown and their G-20 counterparts—responsible for 85% of the world economy—are gathering to push an agenda aimed at ending the slump and avoiding a repeat of the financial crisis that caused it.