Rupee appreciation set to continue

It is expected the rupee would continue to gain this week, owing to the positive sentiment in the market. Last week, new Reserve Bank of India (RBI) Governor Raghuram Rajan had announced a host of measures to attract foreign inflows into the country.

On Friday, the rupee ended at 65.25. During the week, it rose by 46 paise, or 0.7 per cent. Last month, it had touched an all-time low of 68.85 during intra-day trade.

Last week, RBI sold dollars through state-run banks, and this helped the rupee appreciate. Currency dealers expect a few more measures by the central bank this week to add to the positive sentiment.

"The rupee is expected to trade at 64-66 against the dollar this week; the bias is more towards strengthening, as a positive sentiment prevails. The next trigger for the rupee would be the outcome of the FOMC (the Federal Open Market Committee in the US) meeting (scheduled later this month)," said S Srinivasaraghavan, head of treasury at Dhanlaxmi Bank.

Many currency experts said a slightly hawkish tone by the US Federal Reserve could impact the rupee. They added anticipating such a scenario, RBI was taking many steps to attract capital flows.

Job growth in the US was less than expected in August; the unemployment rate was at a four-and-half-year low. Experts say this could lead to the Federal Reserve delaying pulling back its massive monetary stimulus, called the third round of quantitative easing.

Due to the strengthening rupee, it is expected government bond yields would fall from current levels. "India will be able to attract foreign flows, due to which the rupee will strengthen further and the yield on the 10-year 7.16 per cent benchmark government bond would trade in the range of 8.4-8.5 per cent this week," said Mohan Shenoi, president (group treasury and global markets), Kotak Mahindra Bank.

On Friday, the yield on the 10-year benchmark government bond ended at 8.63 per cent, against the previous close of 8.42 per cent. On Friday, the yield rose due to unwinding of positions by traders.

On Monday, foreign exchange and government bond markets were shut on the occasion of Ganesh Chaturthi.