Mumbai: The rupee’s five-day winning streak that had taken it to one-year high ended on Friday as a stumble in the stock market and a recovery in the dollar gave investors the opportunity to close some positions.
The partially convertible rupee ended at 46.40/42 per dollar, slightly weaker than Thursday’s close of 46.34/35. On Thursday, the rupee had risen as high as 46.22, its strongest since 26 September 2009.
For the week it rose 2.8%, its fifth straight gain and the biggest weekly rise in five months. It is up more than 12% from a record low of 52.2 per dollar in March and is nearly 5% stronger this year, the third-best performer in Asia.
The rupee’s gains have been fuelled by the dollar’s weakness against majors, expectations the Reserve Bank of India (RBI) could soon start tightening monetary policy and strong capital inflows into the stock market.
Foreign investors have bought a net $12.8 billion of stocks so far this year, including about $4 billion in September, almost reversing net outflows of more than $13 billion in 2008.
A Reuters poll of major emerging market economies found the rupee is expected to rise to 45.3 over the next 12 months.
One-year non-deliverable forwards are pricing in a 1.3% slide in the rupee from current levels, compared with a 2% decline at end-July, reflecting the changing sentiment.
Tushar Poddar, an economist at Goldman Sachs, said rising inflation would allow the central bank to be more tolerant of rupee appreciation and expected more gains in coming days.
He recommended going short on dollar/rupee for an initial target of 44 per dollar with a 1-day stop on a close above 48.
YES Bank expects the current account deficit to narrow to 0.4% of GDP for the fiscal year that ends in March 2010 from an earlier forecast of 1.3% due to stronger capital inflows and rising offshore commercial borrowings.
It expects the rupee to rise to 45 per dollar by end-March.
In currency futures, the active near-month contracts on the National Stock Exchange and MCX-SX ended at 46.6750 and 46.6750 respectively, and total volume was $2.1 billion, half the record $4.4 billion volume seen earlier this week.