MUMBAI: Rupee climbed to one-year highs on Wednesday buoyed by the dollar's broad-based fall and a stronger start to the stock market that could trigger more capital inflows.
By 10:35 a.m. (0505 GMT), the partially convertible rupee was at 46.15/16 per dollar, off a high of 46.0950, its strongest since Sept. 26, 2008 and 0.8 percent above its Monday's close of 46.48/49. Financial markets were shut on Tuesday for a local holiday.
"Weaker dollar overseas is fuelling selling, it is a sell uptick story," said Ashtosh Raina, head of foreign exchange trading at HDFC Bank. The dollar slid to its weakest level in 14 months against a basket of currencies on Wednesday, under pressure from expectations of continued low U.S. interest rates and investor bets on commodity currencies. Indian shares rose 1 per cent early, tracking mostly firmer Asian markets, but gains are expected to be limited by concern the market may have moved ahead of valuations.
Foreign fund investments into local shares are key factor determining the direction for the rupee. Foreigners have bought a net $12.8 billion worth of shares this year, almost reversing net outflows of more than $13 billion in 2008. At the day's high, the rupee has gained 13.3 percent from its record low of 52.2 hit in early March and is up 5.7 percent in 2009. One-month offshore non-deliverable forward contracts were quoting at 46.03/13, stronger than the onshore spot rate, suggesting a bullish outlook for the rupee.
"The rupee is mostly likely to breach the 46/dollar mark, if the Reserve Bank of India doesn't intervene," Raina said. The central bank has previously said it buys or sells dollars in the spot market to prevent volatility in the local currency. Dealers said they would watch out for any RBI action to limit the sharp rise in the rupee. India's central bank bought a net $181 million in intervention in August, when the rupee had risen to a two-month high, its bulletin showed on Monday.
"Given the state of USD sentiment, it may just be a matter of time before targets such as 42 appear on the horizon," Sean Callow, forex strategist at Westpac, said in a Wednesday note. "The modest amounts reported for intervention from May to August indicate strongly that the range-bound price action on the rupee at a time of sizeable gains for other Asian currencies was not due to large scale central bank USD purchases. We would be surprised if the data for October aren't more eye-catching."
Source : The Economic Times