Robust inflows fuel rupee's relentless rise vs dollar

RECAP

The forex market went through one of its most volatile phases last week. The spot rupee inched up from 44.40/42 to 43.30 during the week.

On the closing day of the financial year, the spot rupee moved up to 90 paise. After opening at 44.03-04, it closed at a wide spread of 43.65/70 to a dollar.

The rupee movement was backed by robust inflows and dollar sales by exporters to cut losses, said dealers. The closing rate released by the Foreign exchange dealers' Association of India was 43.7175 to a dollar. This will be the rate at which the foreign exchange portfolio will be marked for valuation.

Dealers said with this wide range of quotes, a lot of market players booked losses as spot dollar transactions could not be carried forward on the closing day of the financial year.

The market movement was primarily due to exporters selling dollars to realise the receivables and book profit. On the other hand, stray deals were seen where importers covered their positions to make the maximum profit out of an appreciating rupee. Bankers are of the view that the levels are temporary.

However, forward dollars did not see much movement as export cancellations were confined to the spot market. Importer covering in the near term led the three- and six-month premia to close at 1.24 per cent and 0.88 per cent, respectively. However, it came off on exporters booking receivables and receiving premia.

The bond market was upbeat with the ten-year benchmark government security 7.37 per cent 2014 closing at 5.14 per cent at the end of the financial year as against closing of the corresponding ten-year paper at 6.20 per cent on March 31 last year.

The Fixed Income and Money Market Dealers' Association of India announced a yield-to-maturity for ten-year benchmark at 5.16 per cent based on the weighted average of the yields of the trades on March 31.

Strong buying demand pushed up the prices in the long-end by 25-30 paise.

However, in the short-end of the maturity, the Reserve Bank of India signalled a hike in the interest through the cut-off yield announced in the 91-day treasury bills auction. The cut-off yield on the paper was up by 12 basis point to 4.36 per cent as against 4.24 per cent announced in the last auction on March 24.

Dealers said it is an effort to bring in the rates in the short end of the yield curve in alignment of the seven-year repo rate of 4.5 per cent.

The week ended by recording an inflation rate of 4.3 per cent and this resulted in a 35-40 paise rally in bond prices.

Expecting a good amount of supply in the short term, there were brisk trades in the treasury bills to make room for the yields to fall.