Mumbai: The Indian rupee strengthened against the US currency on dollar inflows from foreign portfolio investors and as banks continued to sell dollars on expectations of foreign exchange remittances from non-resident Indians.
The Indian currency ended trading at 63.3650 per dollar, up 0.75% from Tuesday’s close of 63.84 per dollar. It had touched a high of 63.07 a dollar earlier in the day.
Forex dealers said the turnaround in the rupee was mostly led by dollar inflows from foreign institutional investors (FIIs) in the local stock market. After selling $946.53 million in the equity market in August, FIIs have invested $765.29 million in the first 10 days of September, according to figures released by the Securities and Exchange Board of India.
Arvind Narayanan, executive director and head sales, treasury and markets India at DBS Bank Ltd, said foreign funds waiting on the sidelines to invest in India have bought shares, supporting the rupee in the process.
“Besides FII inflows, there are also expectations of higher forex inflows from foreign currency deposits. Data from India and China has also been positive while non-farm payroll data from the US has disappointed which has raised expectations that the Fed’s tapering will be delayed,” Narayanan said.
A drop in Indian trade deficit, figures for which were announced on Tuesday also helped the rupee. India’s trade deficit fell to a five-month low of $10.9 billion in August, because of a decline in gold imports and an increase in merchandise exports. Exports grew 13% in August compared with 11.6% growth in the preceding month.
Since January, the rupee has weakened 13.21%, making it now the third worst-performing Asian currency, after the Indonesian rupiah and the Japanese yen.
The dollar index, which measures the US currency’s strength against major currencies, was trading at 81.809, down 0.01% from the previous close of 81.821.
India’s benchmark Sensex ended at 19,997.45, little changed from the previous close, after touching a high of 20,055.53 points.
The yield on the 10-year government bond ended at 8.471%, down 1 basis point from previous close of 8.485% It had opened at 8.452% and touched a high and a low of 8.515% and 8.415%, respectively. One basis point is 0.01%.
The overnight call money rate ended at 10.25%, up from Tuesday’s close of 10.20%. It opened at 10.35% and touched a high and a low of 10.4% and 10%, respectively.