The rupee strengthened by 81 paise to close at 59.38 against the dollar on heavy capital inflows and strong domestic equity market. The Indian unit was also supported by the sharp drop in the current account deficit (CAD) in the January-March quarter. The CAD narrowed to 3.6 per cent in the quarter ended March 31, 2013, from the historic high of 6.7 per cent in the third quarter.
“The rupee strengthened on the back of positive equity markets and reports of heavy inflows from a big corporate,” said a dealer with a public sector bank.
The domestic unit opened 24 paise stronger at 59.95 against Thursday’s close of 60.19 against the dollar. It continued to appreciate during the day and touched a high of 59.21 in the afternoon trades. Dealers expect the rupee to remain under pressure on account of the strengthening of the greenback against foreign currencies.
Further, foreign investors have been paring their investments in the equity and debt markets following the US Fed announcement last week regarding slowing of bond purchases towards the year-end. This has weakened the Indian currency by nearly 5 per cent in the month of June.
According to Ashish Parthasarthy, Head–Treasury, HDFC Bank, said, “Though markets have seen a pullback, the rupee will remain vulnerable to global and domestic factors. There will be reasonable amount of volatility. The rupee is likely to trade in the broad range of 58-60 per dollar in the next one month.”