Mumbai: The rupee rose smartly on Tuesday, 21 August, as firm Asian stock markets raised hopes for capital flows into Indian equities, but concerns lingered about a global credit squeeze.
At 9:40am (0410 GMT), the partially convertible rupee was at 41.03/04 per dollar, strengthening more than 0.7% from Friday’s 41.33/34. Local currency markets were closed on Monday for a local holiday.
“The rupee should see some strength — Asian indices are up and the Sensex will hold the clue,” said R K Gurumurthy, head of trading at ING Vysya, referring to India’s benchmark stock index that is expected to climb for a second day.
The rupee would test 40.80, Gurumurthy added.
Asian stocks extended gains as credit concerns eased and a softer yen buoyed Japanese exporters, which boosted sentiment for the Indian stock market.
Overseas investment flows into Indian equities have helped the rupee gain nearly 8 percent this year, to be Asia’s best performing currency against the dollar.
The easing yen also indicated an abatement in the unwinding of carry trades, which augured well for the rupee, dealers said.
The rupee had been a beneficiary of the carry trade, where investors sell low-yielding assets in exchange for high-yielding currencies.
A recent buy back of the Japanese currency, amid waning appetite for emerging market assets, had put pressure on the rupee, dealers said.
Still, concerns lingered about a global credit squeeze, with dealers wary of building large positions in the local unit.
Analysts caution that risk aversion could persist as investors remain worried about the US credit market turmoil.