Rupee climbs to 5-week high on dollar inflows, breaches key level

The Indian rupee rose to an over one-month high against the U.S. currency on Tuesday, spurred by foreign inflows into local debt and equity markets.
 

The rupee closed at 79.1475 per U.S. dollar, compared with the previous close of 79.5225, notching up its best session this month.
 

The local currency reached 79.0350 around the middle of the session, its highest level since Aug 5. By comparison, the Chinese yuan and the Indonesian rupiah were barely changed.
 

A trader at a Mumbai-based state-run bank said the rupee managing to open above the key 79.40 level was an additional trigger for the USD/INR pair slipping closer to the 79 level.
 

Hopes of an inclusion of Indian bonds in global indexes and lower oil prices also supported the rupee.
 

"The rupee continues to be an outperformer as FPI (foreign portfolio inflows) supports the pair," said Anindya Banerjee, the head research - FX and interest rates - at Kotak Securities.
 

"Lower oil prices and expectation of Indian bond's inclusion in the global bond indices are fuelling the carry trade in the rupee."

Morgan Stanley has said it expects JPMorgan to announce the inclusion of Indian bonds in global indexes this year. Goldman Sachs reckons that the inclusion will lead to overall inflows of around $30 billion.
 

Meanwhile, foreign investors, after buying about $6.5 billion of Indian equities last month, have purchased around $1 billion so far in September. Overseas investment in debt since the beginning of August has been more modest at around $500 million.
 

Oil prices rose on Tuesday, but were still down month-to-date.
 

The dollar index declined ahead of the key U.S. inflation data, which is expected to show a decline in the headline inflation rate and a rise in core inflation.
 

Rupee forward premiums inched higher, while Indian equities reached their highest level since April.