The rupee rose to a seven-week high against the US dollar on expectations that portfolio investors will pump more money into Indian stock markets due to an improvement in global economic sentiments.
While the rupee opened at 47.82 against the greenback, it touched a high of 47.62. Forex dealers said the Reserve Bank of India intervened in the market around this level to ensure there was not too much appreciation.
“The rupee is strengthening primarily because of flows into equity-related markets. Markets have been rallying but the fundamentals have not changed much with exports and imports continuing to decline,” said RVS Sridhar, senior vice-president (treasury) at Axis Bank.
“If pressure on the trade account is compensated by capital account flows, the rupee will strengthen. In the forwards segment, there is more supply from exporters than demand, which is also providing momentum,” said Moses Harding head of IndusInd Bank’s global market group.
In recent weeks, foreign institutional investors (FIIs) have been bullish on India. According to the Securities and Exchange Board of India, between April and July, FIIs invested $8.82 billion in equities, with $682 million flowing in during the last week of July.
| HOW OTHERS FARE | |||
| Currencies/dollar | Jun 12, ‘09 | Aug 3, ‘09 | % change |
| Malaysian ringgit | 3.50 | 3.51 | -0.13 |
| Indian rupee | 47.61 | 47.64 | -0.07 |
| Hong Kong dollar | 7.75 | 7.75 | 0.00 |
| Taiwan dollar | 32.79 | 32.76 | 0.08 |
| Thai baht | 34.10 | 34.01 | 0.26 |
| Singapore dollar | 1.45 | 1.43 | 1.09 |
| Indonesian rupiah | 10068.00 | 9903.00 | 1.64 |
| Korean won | 1254.00 | 1222.00 | 2.52 |
| Japanese yen | 98.43 | 95.00 | 3.48 |
| Source : Bloomberg | |||
“Global investors have a positive sentiment on India,” said V Kumar, chief dealer at State Bank of Travancore.
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Signs of faster economic growth in China and better data from the United States, which continues to be in recession, have raised the prospect of more investments into Indian stock markets.
The Bombay Stock Exchange Sensitive Index, or Sensex, rose to a 14-month high of 15,924 on Monday, a gain of 1.62 per cent. Exports, however, declined for the ninth consecutive month in June, falling by 27 per cent from a year ago, while imports dropped by 29 per cent.
The treasury head of a private sector bank said the Indian currency was tracking the stock market and the euro-dollar rally. “Beyond that, there is not much logic,” he said.
The dollar declined to its lowest level this year against currencies of six major trading partners of the US as evidence of recovery in banking and manufacturing reduced demand for the greenback as a haven. While the pound sterling touched the highest level against the dollar since last October, the greenback fell 0.5 per cent to 1.4321 versus the euro at 9.10 am in New York, from 1.4257 on July 31.
Bloomberg data, however, suggested that the rupee was unlikely appreciate significantly over the next one month. Offshore forwards contracts indicate bets the rupee will trade at 47.69 in a month, compared with expectations of 48.05 on July 31. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are used for currencies that are not freely convertible and are settled in dollars.
In the currency futures market, the one month rupee-dollar contract gained 0.69 per cent to 47.72 on the National Stock Exchange. On MCX too, the gain was 0.71 per cent and the contract ended the day at 47.72.