Fuelled by capital inflows amid a favourable outcome from key domestic and global events, the rupee gained the most as compared to other Asian currencies on Friday. While the latter took advantage of global dollar weakening, the Indian currency had many other reasons to celebrate.
The rupee on Friday jumped to a four-month high of 54.31 from 55.42 against the dollar in its previous close. It registered the highest single session gain of two per cent in 11 weeks. Data from the Bombay Stock Exchange showed foreign institutional investors had net-invested Rs 2,833 crore in Indian equity markets, the latter rallying 2.5 per cent.
"The rupee is well placed to benefit from the combination of both domestic and global developments," said Hitendra Dave, head of global markets-India at Hongkong and Shanghai Banking Corporation. The closest contenders were the Malaysian ringgit that appreciated by 1.3 per cent and the South Korean won that gained one per cent against the dollar. The rupee on Friday opened at 54.89 and touched a low of 54.92 before closing near the day's high of 54.31 against the dollar. It gained almost 50p in the last three hours of the trading session.
|Currency against dollar|
|Country currency||13-Sep-12||14-Sep-12||% Change|
|South Korean won||1128.43||1117.30||0.99|
|Hong Kong dollar||7.75||7.75||0.02|
|Compiled by BS Research Bureau Source: Bloomberg|
Tagged as the worst performing Asian currency for long, the rupee was facing various issues such as uncertainty and policy inaction on the domestic front. Headwinds from the Euro zone also did not spare the currency, which lost a little over 20 per cent against the greenback in less than a year. Market participants said the rupee had the potential to gain some of its lost ground now, as these issues get resolved.
Dave expects it to gain 2-2.5 per cent more in the short term. However, sustainability of these levels is still in question. "Over the medium term, the level will be decided by the size of the current account deficit and the quality of portfolio inflows," he said.
Dwijendra Srivastav, head of fixed income at Sundaram Mutual Fund, said there was a possibility of the rupee going back to 50 per dollar levels in the next six months. "The risks, however, lie in the size of India's current account deficit and the global oil and commodity prices," he said.
Abhishek Goenka, founder and chief executive officer of India Forex Advisors, expects the rupee to appreciate to 53.5-53.8 against the dollar in the near term.
On Friday, the euro's strengthening also helped the rupee, as it rose to a four-month high. The dollar index as measured against six major currencies fell to almost a five-month low of 78.93.