Expectations of political consensus on a major economic legislation, combined with above average monsoon rains and continued influx of foreign funds are expected to support the Indian rupee in the upcoming week.
"Strong FII (Foreign Institutional Investor) inflows, robust momentum in domestic equity markets, strong domestic macro theme supported by good monsoon and GST (Goods and Services Tax Bill) are factors supporting the rupee," Anindya Banerjee, Associate Vice President for Currency Derivatives with Kotak Securities, told IANS.
"However, we need to be vigilant about RBI's (Reserve Bank of India) intervention. But a sharp rally in Chinese currency and other Asian/EM (emerging market) currencies may make RBI less aggressive about its intervention effort."
The Indian rupee is predicted to range between 66-66.80 in the very near-term.
"Traders may keep an eye on the 66.60/80 region on spot in USD/INR, if that fails to hold on a sustained basis, then risk of 66.00/66.20 would be there," Banerjee cited.
"JPY (Japanese Yen) may continue to find strong traction against rupee with euro staying ranged against rupee."
According to Bansi Madhavani, analyst at India Ratings and Research, the US Fed's move to leave rates unchanged is expected to keep the Indian currency market buoyant in the near term, as high yielding Indian assets retain their attractiveness.
"Accommodative global central banks and ensuing surge in risk preference will augur well for the Indian currency in the near term," Madhavani said.
"Barring the US Fed, most major central banks have exhibited their preference to stay on the easing course -- thus ensuring the rupee stays anchored."
Madhavani added that in the near term, the rupee is likely to trade with an overall stable bias as investors focus on the ongoing monsoon session of parliament to discern signs of the meaningful progress on key reforms along with the corporate earnings season.
Recently, increased chances of the GST Bill getting passed during parliament's ongoing monsoon session has enhanced investors' risk-taking appetite in the currency and equity markets.
Investors are hopeful about the bill's passage after the Union Cabinet on Wednesday approved key changes in the proposed legislation.
Government sources reported that the proposal for one per cent additional tax on inter-state sale had been dropped from the constitutional amendment bill.
The positive outcome of Finance Minister Arun Jaitley's meeting with his counterparts from the states on the issue on Tuesday also raised hopes on the bill's passage.
The pan-India tax reform has been passed by the Lok Sabha but is stuck in the Rajya Sabha, where the government lacks a majority.
On a weekly basis, the currency strengthened to 67.02 against a US dollar from its previous close of 67.08 to a greenback on July 22.
As per provisional figures from the stock exchanges, the FIIs purchased stocks worth Rs 3,719.63 crore during the week under review.
The National Securities Depository (NSDL) figures showed that foreign portfolio investors (FPIs) were net buyers of equities worth Rs 4,454.35 crore, or $663.05 million from July 25-29.
The healthy foreign funds inflow not just supported the rupee, but also aided in the upward trajectory of the key Indian equity indices.
The 30-scrip sensitive index (Sensex) of the BSE closed the week's trade with gains of 248.62 points or 0.89 per cent to 28,051.86 points.
Similarly, the 51-scrip Nifty of the National Stock Exchange (NSE) surged. It rose to 8,638.50 points -- up 97.30 points or 1.14 per cent.
(Rohit Vaid can be contacted at rohit.v@ians.in)
--IANS
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