The rupee rose to two month high on Friday on the back of Banks’ selling dollars in view of foreign portfolio investors lining up to participate in fundraising by India Inc and lack of central bank intervention.

While the rupee appreciated by about 53 paise to close at 73.6950 to the dollar against the previous close of 74.2225, forex market players are nervous as the US Fed chief Jerome Powell could drop hints on tapering of the monetary policy stimulus in his scheduled speech on Friday at the annual Jackson Hole economic policy symposium. The benchmark equity indices on the BSE and National Stock Exchange (NSE) ended over a quarter per cent higher on Friday

The S&P BSE Sensex ended above the 56,000-mark for the first time at 56,124.72, up 175.62 points (0.31 per cent), while the Nifty 50 settled at 16,705.20, up 68.30 points (0.41 per cent).

A hint of taper in Powell’s speech could impact currencies of the emerging market economies (EMEs). This action can trigger increase in interest rates in the US, which in turn will result in outflows from EME capital markets.

The Reserve Bank of India (RBI) has built up a forex reserves war chest of over $600 billion to deal with possibility of volatile forex flows. In the week ended August 20, 2021, the reserves declined by $2.470 billion to stand at $616.895 billion.

The Indian unit opened 5 paise stronger on Friday at 74.1725 per dollar over the previous close, hit an intraday high of 73.6900 and a low of 74.2025.

India Forex Advisors, in a report, said: “The rupee rose to the highest level since June 18 against the dollar as foreign banks sold the dollar persistently for overseas investments into Indian companies that are looking to raise funds through various means.

“A few foreign banks were on aggressive offers for the (Dollar-Rupee) pair in anticipation of inflows likely dollar bond issues.”

Anindya Banerjee, Deputy Vice President, Kotak Securities, observed that after over a month of being caught in a narrow range between 74.10 and 74.60, the USD-INR pair broke down.

“Lumpy corporate dollar flows, rising foreign portfolio investor inflows, and strong sentiments in the equity market caused the sharp slide.

“The central bank was less aggressive in defending the 74.00 level and that caused stop-loss related selling from option writers,” he said.

Banerjee felt that the Jackson Hole symposium will be an event to watch but it may be not enough to turn the tide for the US Dollar. Over the next week, he expects USD-INR can trade between a range of 73.50-74.10 on spot.

 

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