Rupee rises to 3-month high, more gains seen

Rupee rises to 3-month high, more gains seen

Mumbai: The rupee scaled its highest level in nearly three months on Friday boosted by gains in the domestic sharemarket which raised hopes for more capital inflows, a day after the Reserve Bank of India (RBI) raised key interest rates.

The partially convertible rupee closed at 45.8350/8450 per dollar, after touching 45.81, its highest since 21 June and 0.7% above its 46.14/15 close on Thursday.

This is the rupee’s biggest single-day gain since 27 July. On the week the unit strengthened 1.4%, its biggest weekly gain in three months.

“There was a lot of offshore dollar selling today which boosted the rupee. If 45.80 is broken, it opens doors for 45.30 and could head there next week," said Ashtosh Raina, head of foreign exchange trading at HDFC Bank in Mumbai.

Foreign fund inflows support local stocks, the gains in which positively impact the local unit.

Brisk foreign fund inflows helped Indian shares post their best weekly gain in 10 months to close 0.9% higher on Friday, led by Reliance Industries, having tested new 32-month highs each day of the week.

So far in 2010, foreign funds have bought shares worth $15.4 billion, adding to last year’s record $17.5 billion purchases.

“The rupee has been rising because of the rate hike, offshore related selling. INR is likely to continue the appreciation trend and the next important levels are 45.80 and then 45.50," the chief dealer with a large state-run bank in Mumbai said.

India’s central bank on Thursday hiked key rates more than expected to fight inflation and signalled that a tightening cycle that has seen five rate hikes this year may be nearing an end.

Still, India has one or two interest rate increases in store for the rest of the fiscal year that ends in March, a Reuters poll conducted after the policy showed.

“Oil companies, however, have been buying, which is stopping run-away gains in the rupee," he added.

Dealers said the dollar’s losses versus major currencies also aided rupee gains. The index of the dollar against six majors was down 0.2%.

One-month offshore non-deliverable forward contracts were quoted at 45.97, 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 45.9125 and 45.91 respectively, with the total traded volume on the two exchanges at about $7.4 billion.