BackRupee posts biggest single-day gain in 6 months
The rupee strengthened against the dollar as a big jump in domestic share indices stoked hopes that foreign investors will return to Indian equity and bond markets
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Mumbai: The Indian rupee on Tuesday settled 0.87% stronger against the US dollar, its biggest single-day gain in almost six months, as a big jump in domestic share indices stoked hopes that foreign portfolio investors will return to Indian equity and bond markets.
The home currency closed at 67.87 per dollar, a level last seen on 10 February, up 0.87% from its previous close of 68.42, posting, the maximum gain since 18 September 2015. The local currency opened at 68.27 a dollar and touched a high of 67.86, a level last seen on 10 February..
India’s benchmark Sensex index rose 3.38%, or 777.35 points, to close at 23,779.35 as the government’s move to stick to its previously stated fiscal deficit target for the year fiscal 2017 boosted sentiment.
Finance minister Arun Jaitley on Monday pegged fiscal deficit for 2016-17 at 3.5% of the gross domestic product and said that it is prudent to stick to consolidation. Analysts believe that with the government sticking to its fiscal prudence path, the odds for a reduction in policy rates by the Reserve Bank of India (RBI) have increased. RBI will detail its monetary policy on 5 April. Most analysts expect the central bank to cut the repo rate by 25 basis points and some even hope there would be an out-of-cycle rate cut.
“The market is now factoring in a rate by the RBI. This positive sentiment for rupee will continue if we see a rate cut," said Ashutosh Raina, head of trading at HDFC Bank. After a strong open at 68.27 a dollar, the currency touched an intraday high of 67.86 buoyed by expectations of a rate cut from RBI.
Such hopes dragged down bond yields besides the dollar/rupee pair. India’s 10-year bond yield closed at 7.608%—a level last seen on 28 October 2015, from its Monday’s close of 7.626%.
However, currency traders said that this is not a decisive change in the rupee’s direction and the currency may continue to weaken during calendar year 2016. “Today’s gains are basically on the rally in equities and also because global markets have been supportive. But the pressure on rupee is not completely off," said a currency trader at a foreign bank.
Gains in Asian currencies also helped the rupee trade higher on Tuesday. Malaysian ringgit was up 0.81%, Taiwan dollar 0.55%, Singapore dollar 0.49%, Philippines peso 0.31%, South Korean won 0.31%, Indonesian rupiah 0.21% China renminbi 0.05% and China offshore spot 0.04%. However, Japanese yen was down 0.42%.
The dollar index, which measures the US currency’s strength against major currencies, was trading at 98.293, up 0.03% from its previous close of 98.211.
Since the beginning of this year, the rupee has lost 2.52% while foreign institutional investors have sold $2.62 billion from local equity and $1.01 billion in debt markets.
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