Rupee logs best single-day gain in 6 months on forex inflows, stocks rally

The rupee on Wednesday surged by 65 paise -- its biggest single day spike since September 2020 -- to end at 72.72 against the US dollar on the back of weakness in the American dollar and rise in risk appetite in the global markets.

A rally in domestic equities, foreign fund inflows and positive macro data also boosted the rupee sentiment.

The US dollar weakened in the global markets as as investors took heart from an easing in bond yields that has alleviated worries over possible interest rate hikes.

At the interbank forex market, the local unit opened at 73.26 against the greenback and witnessed an intra-day high of 72.71 and a low of 73.26.

It finally settled at 72.72 against the American currency, registering a rise of 65 paise over its previous closing. The single-day rise is the highest since September 1, 2020, when the rupee had shot up 73 paise.

"Market sentiments improved on hopes that massive stimulus packages from governments, easy monetary policies from central banks and progress in vaccination programmes would boost economic growth," said Saif Mukadam, Research Analyst, Sharekhan by BNP Paribas.

The dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.12 per cent to 90.67.

Meanwhile, Brent crude futures, the global oil benchmark, rose 1.69 per cent to USD 63.76 per barrel.

"Furthermore, the rupee appreciated on softening of crude oil prices and consistent FII inflows. Additionally, improved macroeconomic data continued to support rupee. Rupee may trade in the range of 72.80 to 73.80 in next couple of sessions," Mukadam added.

India's services activity expanded at the fastest rate in a year during February and companies noted the sharpest rise in overall expenses, a monthly survey said on Wednesday.

The seasonally adjusted India Services Business Activity Index rose from 52.8 in January to 55.3 in February, pointing to the sharpest rate of expansion in output in a year amid improved demand and more favourable market conditions.

On the domestic equity market front, the BSE Sensex ended 1,147.76 points or 2.28 per cent higher at 51,444.65, while the broader NSE Nifty advanced 326.50 points or 2.19 per cent to 15,245.60.

Foreign institutional investors were net buyers in the capital market as they purchased shares worth Rs 2,223.16 crore on Tuesday, according to exchange data.

"The Indian Rupee appreciated against the US currency, aided by upbeat risk appetite in the region and corporate dollar and equity flows," said Sriram Iyer, Senior Research Analyst at Reliance Securities.

In the international markets, the Dollar Index fell marginally on Wednesday as investor sentiment improved, and government bond yields extended their retreat amid expectations that the Federal Reserve may not allow an unchecked increase in long tenure Treasury yields, Iyer noted.

The benchmark BSE Sensex ended 2.3 per cent higher this Wednesday and aided sentiments, forex traders said.

"Rupee traded strong again on the back of aggressive fund inflows in Indian markets with vaccination roll-outs for 45 and above people giving confidence to investors in Indian markets to emerge strongly out of pandemic," said Jateen Trivedi, Senior Research Analyst at LKP Securities.

Trivedi further said that "with US Bond yields witnessing ease move, after Fridays, extreme movement currencies globally have now come back to zones of last Thursday. Going ahead 72.75-73.25 range can be witnessed."

According to Dilip Parmar, Research Analyst, HDFC Securities rupee recouped the previous week's loss by gaining 65 paise or 0.89 per cent to 72.72 a dollar which is the biggest single-day gains after September 1, 2020.

"Domestic stocks enjoyed a monster rally, with the Benchmark Nifty50 Index gaining 2.2 per cent, erasing previous week's losses and closed at life high levels, on expectation of fund inflows in primary and secondary market. So far this quarter, foreigners have bought more than USD 5 billion equities," Parmar said.

Market sentiments turned favourable for risk-assets as well as for Asian currencies as the yield curve bull flatten, a dollar rally that has been threatening in recent sessions has just taken a step back once more, he noted.