At the Interbank Foreign Exchange (Forex) market, the domestic unit resumed slightly lower at 54.73 and immediately touched a low of 54.78 on the back of initial hesitancy in local stocks.
However, a smart recovery in equities after the morning session on account of rise in refinery stocks helped the rupee to bounce back to a one-month high of 54.22, a level not seen since intra-day high of 54.10 on December 13, 2012.
With FIIs supporting the rupee with nearly R600 crore fund infusion in stocks today, the domestic currency closed at 54.39, registering a net rise of 30 paise or 0.55%.
In the previous two days, it had fallen by 20 paise or 0.37%. The rupee closed at its two week high against the US dollar after the government announced the deregulation of the diesel prices. This signals that there would be regular hike in the diesel prices, said Abhishek Goenka, founder and CEO, India Forex Advisors.
Meanwhile, the dollar index was down by 0.20% against a basket of six major global currencies.
Pramit Brahmbhatt, CEO, Alpari Financial Services (India), said: Rupee strengthened sharply after government allowed the Oil marketing companies to hike diesel prices in a periodical manner...The policy action from government has no doubt eased the pressure on fiscal deficit but will strengthen the RBIs status quo stance on rate cut policy.
Meanwhile, the premium for the forward dollar reacted downwards on fresh receipts by exporters. The benchmark six-month forward dollar premium payable in June fell back to 161-163 paise from Wednesdays close of 167-1/2-169 paise.
Subsidy cut hopes fuel bond prices
Mumbai : The government bonds rose on Thursday, snapping a two-session fall, after the government allowed state-run refiners to set diesel prices, a move that could help cut the bloated subsidy bill.
Gains were, however, capped as the government said any price hike could only be incremental, raising concerns that political control over such hikes would remain.
Policy to subsidise retail prices of fuels such as diesel, which accounts for about 40% of refined fuel consumption, is a major drain on the governments finances and has been a reason for the countrys high fiscal deficit.
The benchmark 10-year bond yield ended 4 bps lower at 7.84%. Swap rates fell, with the 1-year rate 1 basis point lower at 7.56%. The long-end benchmark 5-year rate was also down 1 bp at 7.14%.Reuters