Mumbai: The rupee reversed its early gains and ended almost flat against the dollar on Monday but still held strong against the US currency. A demand for the dollar towards the end of the day erased the early gains, dealers said.

India’s currency markets are upbeat on expected improvements in economic fundamentals with a change of guard at the Centre, dealers said.

The rupee ended at 59.19 against the US dollar, down 0.01% from previous close of 59.18. The unit opened at 59.09 per dollar and touched a high of 58.98. India’s benchmark index, S&P BSE Sensex ended at 25,580.21 points on BSE, up 0.72%.

On Monday, HSBC raised the year-end rupee forecast to 60 per dollar from 62 citing positive changes in the economy. “Modi factor has raised hopes India can unlock its economic potential," HSBC analysts led by head of Asian FX research Paul Mackel wrote in report about the new government headed by Prime Minister Narendra Modi.

Since the beginning of this year, the rupee has gained 4.41%, while foreign institutional investors (FIIs) have bought $8.51 billion during the period from the local equity markets.

The yield on India’s 10-year benchmark bond ended at 8.551%, compared with its Friday’s close of 8.513%. Bond yields and prices move in opposite directions. The dollar index, which measures the US currency’s strength against major currencies, was trading at 80.549, up 0.17% from the previous close of 80.409.

“There is a clear confidence that is developing that Indian economy is reviving after a period of lull," said Satyajit Kanjilal, managing director at Forexserve. “That is supporting the sentiments in the financial market. Rupee should stay strong at the current levels and in a range of 57-60 against the dollar in the near-term."

While sentiment is upbeat after a stable government came to power at the Centre, how the monsoon pans out across the country will be a decisive factor for the economy and financial markets going ahead, Kanjilal said. The rupee forward premium for one year reached a record high of 8.97% in the intraday trade. However, the premium closed at 8.77%, implying high volatility.

“Persistent paying from national banks in the longer tenors is the primary factor behind it, with exporters finding it attractive levels to receive, leading to steeping of 3M-1Y curve," ING Vysya Bank Ltd wrote in its market wrap-up.

Forward premium, over the present spot rate, is paid on the future date of the transaction. In the last four trading sessions, the premium has risen 60 basis points from 8.14% to 8.74%. Reserve Bank of India (RBI) has been swapping the dollar in the futures market to cool off the exchange rate. The central bank does that through a clutch of nationalised banks.

Close