Rupee Surges 5.1% in a Month.

The worldwide action over currency rates and global imbalances have intensified recently amid increasing signs of a slowdown in the economic recovery from the trough of 2008. A war of words has already erupted with the developed world on one side and the developing world on the other.

With policy rates in the developed world near record low and monetary stimulus still very much in place, foreign inflows are flooding the fast-growing economies for higher returns. This has prompted policymakers in the emerging nations to take protective measures in a bid to support their export-centric growth.

The currency market witnessed an eventful performance in the last week. Currency majors giving all their gains at the end of the week with dollar index closed at 76.96 making a low of 76.15.

At the domestic front, the Indian rupee last week surged to its highest level since August 2008, buoyed by record foreign investment, shaky dollar, near all-time high stock market and the upcoming biggest initial public offering in the country.

The partially convertible rupee closed at Rs 44.10/11, after rising to Rs 43.95. Last week, dollar selling was mostly flow-driven and to some extent in tandem with the euro moves as well, but, overall, the heavy supply was on account of Coal India’s initial public offering.

This week, the rupee is expected to extend its recent ascent as foreign capital inflows will increase amid big-ticket public issues. However, the expectation that the RBI would intervene to protect exporters, importers dollar requirement at the end of the month, possible correction in the equity market and recovering dollar against majors will limit further appreciation this week.

We expect the rupee downside to cap at around Rs 43.80/90 levels and might see a bounce back to Rs 44.40/50 levels.

Source : economictimes.indiatimes.com