Thursday, September 30, 2010

Rupee surges to 5-month high as shares climb

MUMBAI: The Indian rallied to five-month highs on Friday, powered by hopes for sustained foreign portfolio investments and a wobbly overseas. At 11:08 a.m. (0538 GMT), the partially convertible rupee was at 44.71/72 per dollar after hitting 44.65, which was its strongest since May 4.

It gained 0.5 percent on the day, adding to a 3.4 percent rally in the September quarter when foreigners moved more than $11 billion into Indian stocks, chasing potentially better returns in the fast-expanding economy. \"The rupee has gained due to the positive court verdict yesterday as also due to the euro\'s rally. Dollar is broadly weaker,\" said Ashtosh Raina, head of forex trading at HDFC Bank.

An Indian court ruled on Thursday that the site of a demolished mosque would be split between Hindus and Muslims, dousing immediate fears of a violent backlash in one of the country\'s most religiously divisive cases. Dealers said they expect the rupee to trade in a range of 44.40-44.80 on Friday, with the next strong resistance seen at 44.50 and then at 44.40. Indian shares rose more than 1.3 percent, boosted by strong foreign fund inflows and firm Asian equities. Net equity inflows in 2010 now stand at a record $18.2 billion, above last year\'s $17.5 billion.

\"On the currency front, the USD is likely to remain under selling pressure in the near term as markets focus remains on the prospect of the Federal Reserve expanding its quantitative easing program,\" economists at HDFC Bank said in a note. \"However, global risk appetite is likely to be challenged by weakening global growth in the medium term. Hence, the USD is expected to stage a comeback via the \'safe-haven\' trade in the medium term,\" they wrote.

India\'s current account deficit widened in the June quarter from the previous three months due to higher merchandise trade gap and lower earnings through services, roughly in line with market expectations. \"The INR will likely continue to rally as risk appetite improves in the near term but the medium-term outlook is less favourable. The current account deficit will act as a natural resistance for sustained INR strength,\" HDFC economists said.

Dealers said the dollar\'s movements versus majors would be watched for direction. The index of the dollar against six majors was down 0.1 percent. Most Asian currencies were also stronger compared to the dollar.

The euro edged up towards a five-month high on the U.S. dollar and the Australian dollar gained after upbeat Chinese data encouraged a little risk-taking in the higher-yielding currency ahead of U.S. indicators. One-month offshore non-deliverable forward contracts were quoted at 44.88, weaker than the onshore spot rate.

In the currency futures market, the most traded near-month dollar-rupee contracts on the , MCX-SX and were at 44.92, 44.9225 and 44.92 respectively, with the total traded volume on the three exchanges at about $2.1 billion.
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