LM:Rupee leaps to 61.74 per dollar on Fed’s stimulus relief
Mumbai: The Indian rupee on Thursday strengthened significantly, in line with other emerging market currencies after the US Federal Reserve said it will continue to buy bonds worth $85 billion a month in a stimulus programme to support the US economy and the banking system.
The Indian currency opened 2.51% higher at 61.8350 per dollar against Wednesday’s close of 63.3850, according to Bloomberg data. At 2.05 pm, the rupee was trading at 61.74 per dollar after strengthening to as much as 61.64 in morning trade, while the equity benchmark Sensex was up 3.37%, or 671.88 points, to 20,634.04 points.
All emerging markets equity indices rallied, pushing up the exchange rates of their respective currencies. Currencies in Asia rose, with the Indonesian rupiah rising as much as 4.667% from its previous close.
However, the rupee is still one of the worst-performing currencies in Asia this calendar year. Since January, the rupee has weakened 10.96% and lost the second most after Japanese yen.
Technical charts indicate the rupee will strengthen further.
“For the day, we are expecting rupee to trade between 61.35 and 62.15 a dollar. Exchange rate at 62.20 is a good resistance level. If the exchange rate manages to hold there, rupee will go to 60.70 level,” said a senior dealer with a foreign bank.The dealer didn’t want to be named.
The dollar index, which measures the US currency’s strength against major currencies, was at 80.126, down 0.14% from the previous close of 80.237. The dollar fell to a seven-month low against the euro and a six-month low against the yen after the Fed’s announcement.
The outcome of the US Federal Reserve’s two-day meeting surprised the markets, which were expecting at least modest cut in the asset-purchase programme.
“The surprising Fed FOMC (Federal Open Market Committee) decision is supportive of risk appetite in emerging markets as it reduced the policy-induced tail risks significantly, in our view,” said Barclays Bank in a research note.
“This should be particularly supportive for the currencies and rates markets of countries running current account deficits,” said the report. The Fed’s decision may prompt the Reserve Bank of India (RBI) to ease its liquidity tightening measures, too, when it announces its monetary policy decision on Friday.
Currency dealers say the rupee is poised to strengthen from the present level.
“Earlier the rupee move was based on fears of fundamentals. Now it is driven by fears of correction. Clearly the exporters sitting with their dollars missed a chance,” said Satyajit Kanjilal, head of Forexserve, a currency consulting and treasury management firm.
“Now that the dollar demand by the oil marketing companies are met separately through a swap window and stock markets rallying, rupee should strengthen more,” said Kanjilal.
Harihar Krishnamurthy, head of treasury at First Rand Bank, said the Fed’s decision clearly surprised the markets as investors had priced in a $10 billion cut in the US bond purchase programme.
“Now it is fairly clear that the cut may not even come in this calendar year. Coupled with this, India’s trade deficit has improved, and foreign investors have started becoming net buyers of Indian stocks after being net sellers for three months. Rupee can be fairly expected to go to 60 soon,” said Krishnamurthy.
The yield on the 10-year bond was at 8.172%, from its previous close of 8.373%.
The interbank overnight call money rate was at 10.30%.
