Rupee Ends At 5 Month High On Foreign Fund Inflows & RBI Absence

Mumbai:The Indian rupee surged to a five month high on Wednesday closing 72 paise up at 84.49 to a dollar spurred by foreign fund inflows amid optimism over a US-India trade deal. Notably, absence of intervention from the Reserve Bank of India emboldened traders to sell the US currency. Meanwhile, analysts warn that if the Indo-Pak war erupts, the rupee could quickly erase its gains.

“The flows seemed to be related to the new 10-year bond being launched by RBI on Friday as also JP Morgan emerging market debt index flows which had been abandoned in the last few months due to a weakening rupee. There were hardly any buyers for the currency pairs with importers completely hedged while exporters now having very little hedge with rupee giving them very few opportunities,” said Anil Kumar Bhansali, head of treasury, Finrex Treasury Advisors.

According to traders, lower crude oil prices also helped along with the RBI’s decision to purchase government bonds worth Rs 1.25 lakh crore to ensure that surplus liquidity remains in the market. Market is expecting another rate cut in the next RBI meeting in June as inflation eases. The words of the trade secretary of United States about a quick deal with India also helped as also the gain in Asian currencies like offshore Chinese Yuan and the South Korean Won.

The rupee has gained almost 4 per cent from the low of 87.96 it made in February-25 and was at its highest this year.

“For Friday we expect the flows to continue and unless there is some Geo-Political tension between India and Pakistan rupee may continue to gain. Also, May has been a month of depreciation for rupee which may take it lower and give a chance for exporters to hedge and sell the pair,” added Bhansali.

The country's financial markets will remain shut on Thursday for Maharashtra Day

“Looking ahead in the near term, the spot USDINR pair finds support around the 84.10 level and faces resistance near 85.50. The current bias appears to favour further strengthening of the rupee," said Dilip Parmar – Senior Research Analyst, HDFC Securities.