The Hindu Business Line : Rupee starts year on positive note

The rupee has strengthened by over 35 paise against the dollar in the past three days backed by strong FII inflows into the equity markets and the global rally in other international currencies.

On the first trading day of this calendar year, the rupee weakened marginally as there was lack of interest. However, since then the rupee has gained 37 paise. On Thursday, it touched an intra-day high of 44.64, which was last seen three months ago in October.

Global currencies such as the pound, yen and euro too have rallied against the dollar. The other major currencies also appreciated on the back of US data related to manufacturing (ISM Index) released on Tuesday, which was worse than expected.

According to a bank official, the dollar started weakening after the Federal Reserve indicated that it was reaching the end of its rate hikes. Dealers had interpreted this to mean that there could be only one more rate hike for the time being.

A section of the currency traders believes that there is scope for the rupee to appreciate further because of the projected growth in the Indian economy and equity inflows. But some other market participants believe that the rupee is overvalued by 8 per cent as per the REER and given the current account deficit it may not appreciate beyond 44.50.

"Eventually the rupee would consolidate at the level of 45.25," said a dealer.

There could be exporter-selling dollars around the 45 level, said market participants. "Many exporters had not sold dollars when the rupee had crossed 46 as they were waiting for it to fall to 47".