Rupee rose for a second day as the euro headed for a third weekly advance, spurring optimism the economic impact of Europe?s debt crisis will be contained and investors will return to emerging markets.
The rupee climbed as exchange data showed foreign holdings of local stocks and bonds touched all-time highs of $81 billion and $14.95 billion, respectively, this week. The euro extended gains this month against the dollar to 4.7% after reports last week showed Germany?s factory output increased 2.6% in May, more than twice the pace economists had estimated, while unemployment declined for a 12th month in June.
?The rupee is tracking the strength of other currencies against the dollar, particularly the euro,? said Sudarshan Bhatt, chief currency trader at state-owned Corporation Bank. ?We can expect some modest appreciation in the short term.?
The rupee strengthened 0.2% to 46.61 per dollar, according to data compiled by Bloomberg. It is the worst performer this month among Asian currencies, with a 0.3% loss. The currency may rise as high as 46.20 in the coming days, Bhatt predicted.
However, 10-year bonds fell for a third day before sale of Rs 13,000 crore ($2.8 billion) of government securities tomorrow, which may squeeze availability of cash at banks.
Yields approached their highest in a week after food inflation accelerated for the first time in three weeks. India will offer bonds maturing in 2017, 2022 and 2027 as part of the government?s record Rs 4.57 lakh crore borrowing programme.
?Liquidity continues to be a concern and more supplies are scheduled,? said Anoop Verma, a fixed-income trader at Development Credit Bank. ?Inflation is also showing no sign of abating.?
The yield on the 7.80% note due May 2020 rose one basis point, or 0.01 percentage point, to 7.64%, according to the central bank?s trading system. The price fell 0.04, or 4 paise per Rs 100 face amount, to Rs 101.11.