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Despite the US Federal Reserve announcing further tapering late on Wednesday, the rupee strengthened to a three-week high due to heavy dollar sale by foreign banks and corporates.
According to the Street, the rupee would have strengthened even beyond 60 a dollar, but gains were capped by state-run banks acting on behalf of the Reserve Bank of India (RBI).
The rupee ended at 60.16 compared with the previous close of 60.34 to the dollar. The rupee had opened at 60.23 and during intra-day trades it touched a high of 60.09 and a low of 60.26 against the dollar. The rupee had ended at 60.07 to the dollar on April 10. The market was closed on Thursday for Maharashtra Day.
“Foreign banks and corporates were selling dollars due to which the rupee appreciated. However, when the rupee reached its intra-day high, state-run banks were seen buying dollars. Next week if the rupee breaks the 60-mark then it may find support at 59.75,” said Sandeep Gonsalves, forex consultant and dealer, Mecklai & Mecklai.
The US Federal Reserve announced a further reduction of its economic stimulus efforts late on Wednesday. It decided to trim its monthly bond buying programme by an additional $10 billion to $45 billion. They have been buying bonds to keep long-term interest rates low.
Meanwhile, data from RBI shows in the week ended April 25, foreign exchange reserves rose by $499.8 million to $309.91 billion. Foreign currency assets, a key component of foreign exchange reserves rose by $493.2 million in the same week to $282.03 billion. Gold reserves remained unchanged at $21.57 billion.
For the week under review, the special drawing rights rose by $4.6 million to $4.48 billion, while India's reserve position with the International Monetary Fund was up $2 million to $1.83 billion.
Indranil Sen Gupta, India economist, Bank of America Merrill Lynch, wrote in a note to clients earlier this week RBI needed to buy about $80 billion foreign exchange reserves by March 2016 to maintain the current eight-month import cover. “We expect RBI to buy $33.9 billion (including foreign exchange swaps with oil companies) in the FY15 and $41.7 billion in FY16, if oil stabilises at $105 per barrel levels. A stable Delhi will also likely raise $20-25 billion by listing Indian government securities in a benchmark emerging market bond index,” said Sen Gupta.
The US non-farm payrolls data, declared late on Froday night, might impact the rupee at the start of next week. According to currency dealers, the broad trading range for the rupee is seen at 59.75 to 60.75 next week.
