Re seen gaining more strength
The rupee on Tuesday hit a more than five-week high on suspected dollar inflows (capital infusion) into a private bank, a large foreign bank unwinding its long dollar position in the non-deliverable forward market (NDF) and a correction in the dollar index.
Said a trader on condition of anonymity, “There are dollar inflows expected from the proposed capital infusion of Rs 8,900 crore by Us-based private equity investors Carlyle and Advent in Yes Bank. Also, there is news that a large foreign bank, probably Citibank, has unwinded its long dollar position in the NDF market and the dollar index has also corrected steeply, which helped in the rupee appreciation.”
The domestic currency jumped 30 paise to close at 78.71 to the US dollar against its previous close of 79.02. At the interbank forex market, the local unit opened strong at 78.96 against the greenback and witnessed an intra-day high of 78.49 and a low of 78.96. Equity market benchmarks recovered from early losses and ended flat. The rupee has made gains of about 1.4 per cent over the past four trading sessions but is 5.4 per cent down year-to-date against the US dollar.
The dollar index, which measures the greenback's strength against a basket of six currencies, strengthened by 0.10 per cent at 104.9.
“If you look at the dollar index, in the first half of the day, the euro, GBP and yen were appreciating against the dollar but in the second half, the dollar had retracted some of its losses. This is the reason that the rupee, from 78.50 ended at 78.70. So, it’s not entirely specific to the rupee only. This is actually a global story. There is a possibility of the rupee testing 78.10-78.20 levels in the current risk on scenario as the global sentiments are positive as of now, even as global equities are considered, the rupee could be a beneficiary of this because from the end of July you are seeing FPI inflows on a daily basis,” said Ritesh Bhansali, vice-president Mecklai Financial Services.
“So, if this trend continues you could see the rupee testing 78.10 levels where we expect the RBI to intervene strongly and again rebuild their forex reserves which were utilised to prevent severe rupee depreciation. August and September are usually slightly volatile, so you might see between 78.10 and 78.25 or 78.15 maximum,” added Bhansali.
After depreciating to a record-low of 79.99/$ on July 20, the rupee had closed the fortnight stronger by 0.9 per cent. Apart from a weaker dollar, a reversal in FPI outflows has also helped the domestic currency. FPIS which remained net sellers in the domestic markets for the past nine months, invested $239 million in the Indian markets in July. Although small, this suggests an improvement in investor sentiment which should support the rupee going forward. Further, active intervention by RBI in the foreign exchange market has also ensured an orderly movement in the exchange rate.