Mumbai: The Indian rupee rallied to its highest in more than four months on Tuesday, boosted by surging foreign buying of domestic stocks, but soon met with resistance as importers stepped in to cover their positions.
Oil refiners are the biggest buyers of dollars in the domestic foreign exchange market and their demand usually picks up toward the end of each month when they make payments.
At 10:30am, the partially convertible rupee was at Rs45.65/66 per dollar, after hitting Rs45.49, its highest since 14 May. It was still up 0.1% from Monday’s close of Rs45.70/71.
“The rupee has rallied quite a bit over recent sessions but most of the rally has been flow induced and lately some exporter selling has also been seen,” said Hari Chandramgathan, a foreign exchange dealer, with Federal Bank based in Cochin.
“I do not expect the rupee to breach Rs45.50 today, so broadly see it trading in a range of Rs45.50-45.70,” he said.
Attracted by the country’s robust economy, overseas investors have moved nearly $3 billion into Indian equities so far in September, taking net investment this year to $15.8 billion.
The inflows lifted the main stock index past 20,000 points in early trade for the first time since January 2008. At the day’s high, the rupee was up 3.5% so far in the month and has gained 2.3% in 2010.
In 2009, the rupee had strengthened 4.7% on foreign equity inflows of a record $17.5 billion.
Dealers said the dollar’s losses versus major currencies and other Asian peers also boosted the rupee.
The dollar slipped near a five-week low against a basket of currencies on Tuesday with traders cautious ahead of a Federal Reserve policy meeting that may discuss the need for further easing.
The Fed decision is at 11:45pm and few traders expect it to apply another dose of quantitative easing just yet -- and the dollar could gain if that view proves correct -- but the central bank is expected to signal its readiness to make such an action if needed.
The index of the dollar against six majors was down 0.2%. Most Asian currencies were stronger.
One-month offshore non-deliverable forward contracts were quoted at Rs45.83, 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 the United Stock Exchange were at Rs45.7050, 45.7025 and 45.7075 respectively, with the total traded volume on the three exchanges at about $2 billion.