Mumbai: The rupee pulled off from one-month highs on Monday driven by dollar purchases by importers, but still closed stronger on the day, helped by gains in shares and the dollar’s drop versus major currencies.
The partially convertible rupee closed at 46.24/25, off the day’s high of 46.11, its highest since 28 June and 0.3% above its 46.40/41 close on Friday.
“The rupee opened stronger with a large gap tracking shares and the dollar index, but there was a lot of buying interest seen from importers both, oil and non-oil at the lower levels,” said Ashtosh Raina, head of foreign exchange trading at HDFC Bank.
Oil is India’s biggest import and refiners are the largest buyers of dollars in the domestic currency market.
“Forty-six level may be seen in a few trading sessions and if broken it could go to 45.80, but don’t see it dipping too much beyond that point,” he added.
Gains in the share market boosted the rupee and raised hopes for more foreign fund inflows which have a huge influence on the rupee’s fortunes.
So far in 2010, foreign investors have been net buyers of $10.3 billion worth of shares in Indian share market in addition to last year’s record $17.5 billion inflow.
Shares notched their best single-day gain in 6 weeks, rising 1.2%, boosted by robust corporate earnings, strong July auto sales and a pick up in manufacturing expansion, with firm world equities also supporting sentiment.
“I expect the rupee to hold in a 45.80-46.80 range this week. Markets are so fickle, if risk aversion returns euro can slip to $1.29 easily and if that happens you will see the rupee falling to 46.80 in no time,” a senior dealer with a private bank said.
“The fall in the dollar to 46.20 is partly on account of the initial public offering related flows, so a rebound to 46.50 is easily possible even without much change in the euro and stock levels,” he added.
The South Korean won and Malaysian ringgit led Asian currencies higher on Monday as investors bid up riskier assets, prompting several central banks in the region to intervene to temper local currency gains.
The dollar index hit a three-month low on Monday, hurt by worries that the US economy’s recovery is losing steam, while the high-yielding Australian dollar reached a three-month high, buoyed by a rise in equities.
One-month offshore non-deliverable forward contracts were quoted at 46.44, weaker than the onshore spot rate.
In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange and MCX-SX closed at 46.4400 and 46.4450 respectively, with the total traded volume on the two exchanges at about $4.1 billion.