Indian rupee soars as US dollar weakens against EM basket of currencies

Mar 05 2014, 22:03 IST
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Indian rupee touched an intra-day high of 61.68/69 on spot, before closing around 61.75/76 levels. Indian rupee touched an intra-day high of 61.68/69 on spot, before closing around 61.75/76 levels.
SummaryIndian rupee touched an intra-day high of 61.68/69 on spot, before closing around 61.75/76 levels.

Indian rupee had an rousing day today, as sizeable inflows from foreign investors and offshore carry bets drove the local unit higher against most currencies. Indian rupee touched an intra-day high of 61.68/69 on spot, before closing around 61.75/76 levels. US dollar traded weak against emerging basket and the Asian basket of currencies. However, US Dollar was mixed against the majors like Euro, Pound and Yen. The sharp rally in the domestic bourses worked in Rupee's favour. Money market tightness is keeping the forward premium elevated in the onshore markets, but offshore maintained a discount of 10/15 paise on 1-month basis. The 12-month forward premia closed around 513/15 paise.

Dates for the national elections have been declared and the elections are a month away. We had mentioned some time back, that closer to election, Rupee tends to appreciate, as speculative bets on the offshore markets, works in Rupee favour, esp. at a time, when consensus is for a stable government.

We expect, oil marketing companies and also the central bank play an active role in covering forwards exposures and building reserves.With Rupee hovering below 62.00, we can expect some uptick in hedging activity from the importers as well. Therefore, we look forward to a range of 61.00/61.50 and 62.10/30 over the near-term on spot. The key support levels on the pair are: 61.30/40 and 60.70/90 region. Key resistances for traders will be 62.15/20 and 62.50/60. Key events to watch out for the rest of the week are the policy meeting of the European Central Bank and the US Jobs data for the month of February.

By Anindya Banerjee, analyst, Kotak Securities

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