NEW DELHI: After opening steady, the rupee settled stronger versus the US dollar on Wednesday as the dollar index fell sharply and as some banks offloaded the greenback, likely on behalf of exporters, dealers said.
The partially convertible rupee settled at 74.35/$1 as against 74.55/$1 at the previous close. The Indian currency, which had opened at 74.5450/$1, travelled in a band of 74.30-74.55/$1 during the course of the day.
The US dollar index, which measures the greenback against six major rival currencies, was last at 96.06, much lower than 96.33 earlier in the day.
The dollar had firmed up significantly earlier this week as speculation of the US Federal Reserve raising interest rates in the coming months led to a surge in US government bond yields.
The strength in the rupee on Wednesday may also have been attributable to shallow volumes, dealers said, adding that breaches of technical levels had boosted the rupee more than domestic economic fundamentals warrant.
“There is still some degree of exporter selling (of dollars) which is happening as the rupee is not yet showing significant correction after the huge rally witnessed in December,” a dealer with a foreign bank said on condition of anonymity.
“On the one hand, the merchandise trade deficit is still near record highs, imports are rising and after the OPEC meeting, crude has risen past $80 a barrel. Emerging market currencies do stand to gain when the dollar index weakens but given the other macro factors we feel the rupee should correct in the near term, especially as the Fed tightens,” he said.
Provisional data show that India’s trade deficit continued to print on the higher side, clocking in at around $22 billion in December, not far from the record-high of $23 billion a month ago.
While exports gained 37 per cent on an on-year basis in December from 27.2 per cent in November, imports remained robust, registering a 38.1 per cent on-year increase in December.
The minutes of the Federal Reserve’s December meeting are expected after Indian trading hours Wednesday, while the US Labor Department will release non-farm employment data on Friday.
Both the releases will shape perceptions regarding how soon the Fed will commence tightening monetary policy.
The prospect of higher US interest rates has prompted foreign institutional investors to pull out funds from Indian equities over the last couple of months and depending on the pace of Fed rate hikes, the phenomenon could intensify, dealers said.
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