Mumbai: The Indian rupee rose to its highest in more than four-and-half months on Wednesday, propelled by sustained foreign portfolio investments and the dollar’s weakness against major currencies.
At 10:45am, the partially convertible rupee was at Rs44.95/96 per dollar, after hitting Rs44.85, its highest since May 10 and 0.4% above Tuesday’s close of Rs45.15/16.
“The rupee is mainly tracking the euro today, stocks are not really a determining factor so far. Appetite is moving away from the dollar towards more risk currencies,” said Abhijit Ray, a foreign exchange dealer with state-run Allahabad Bank.
The ailing dollar looked vulnerable to further losses against a swathe of currencies on Wednesday as falling Treasury yields and disappointing U.S. data fuelled talk that US policy needed further easing.
The index of the dollar against six major currencies was down 0.2%. Most Asian currencies too were stronger compared to the dollar.
“Importers are waiting for the rupee to strengthen further probably. The dollar is finding good support at Rs44.85, and then is likely to be held at 44.82. We are likely to see oil companies come in, to buy around Rs44.77-44.80,” Ray said.
Oil is India’s biggest import and refiners are the largest buyers of dollars in the domestic currency market with their demand tending to peak at the end of each month, when they make payments.
However, importers have been buying dollars through September as the U.S. unit kept weakening versus the rupee, averting the spike in month-end demand.
“The undertone is for a strengthening rupee. Foreign fund flows are likely to continue as the stocks rally is not on the back of plain euphoria but strong fundamentals. We could see 44.50 soon, but that could prompt intervention as it is not a very rosy situation for exporters,” Ray said.
India’s central bank buys or sells dollars via state-run banks to contain extreme volatility in the rupee, but doesn’t usually protect any particular level.
The main stock index was trading down 0.2% after climbing 0.6% in early trade. Foreigners have moved $5.1 billion into stocks this month, taking net investment so far in 2010 to a record of nearly $18 billion, above last year’s $17.5 billion.
The rising inflow had lifted the rupee 1.3% last week, its best rally in three months. The unit is up 0.7% so far this week.
One-month offshore non-deliverable forward contracts were quoted at 45.11, 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 were all at Rs45.1725 with the total traded volume on the three exchanges at about $2 billion.
Bonds, call, short-term debt and foreign exchange markets are shut on Thursday for half-yearly closing of banks’ accounts.