Rupee rises 0.8% to 1-year high

The rupee rose to a one-year high on strong capital flows and banks selling dollars to benefit from the arbitrage between the local and overseas forwards market.

Dealers said there were hardly any buyers for the dollar. Foreign direct investments (FDIs) and capital flows into stock markets have partly influenced the rupee rise.

The rupee appreciated 0.8 per cent to 46.14 a dollar at close. It touched 46.08 in intraday trading.

According to Sebi data, overseas investors have bought equities worth $12.2 billion, more than twice the amount from last year.

Inflows from foreign funds into the initial public offer of Indiabulls Power boosted the rupee. "FII inflows are here to stay for a while a now. So, the outlook on the rupee is positive," said a dealer with a foreign bank.

Besides inflow of foreign funds, dollar's weakness globally worked to the benefit of the rupee, said a currency dealer with a public sector bank.

Most global currencies rose (against the US dollar), so the rupee also gained. FII inflows and NDF arbitrage also pushed up the Indian unit. Offshore contracts indicated the rupee would trade at 46.08 to a dollar in a month, compared with expectations of 46.46 at the previous close.

RBI has not been active in the market. It has decided to enter only to calm volatility and not to protect the rupee at particular, dealers said.

Dollar/rupee futures on exchanges ended weak as the dollar was hit in the spot and overseas markets. The one-month contract on the National Stock Exchange ended at Rs 46.1775 a dollar, compared with 46.5225 on Monday.

Forward dollar/rupee premiums ended up because banks bought forward dollars for importers noting the gains made by the spot rupee, dealers said.

The benchmark one-year forward premium ended at 3.18 per cent, compared with 3.13 per cent.

The rupee may extend gains if the dollar stays weak against currencies such as the euro and the pound. Banks may also sell the greenback on hopes of inflows from foreign funds as local share indices are seen firm tomorrow.

10-year bonds decline before govt debt auction
India’s 10-year bonds fell, pushing yields to a one-month high, on speculation some investors will pare holdings to raise cash for purchases at a government debt auction this week.

The government will sell Rs 10,000 crore ($2.2 billion) of bonds maturing in 2014, 2020 and 2024 on October 16, according to the finance ministry. The South Asian nation plans to borrow as much as Rs 1.23 lakh crore in the second half of the fiscal year that ends on March 31.

"It looks like traders are cutting positions ahead of the auction and the long weekend," said Baljinder Singh, a fixed- income trader at state-owned Andhra Bank in Mumbai. "Ten-year yields are likely to move higher."

The yield on the 6.90 per cent note due July 2019 climbed one basis point to 7.37 per cent as of the 5:30 pm close in Mumbai, according to the central bank's trading system. The price fell 0.07 per cent, or 7 paise per Rs 100 face amount, to Rs 96.78.

The government will offer Rs 3,000 crore of five-year securities and Rs 4,000 crore of 6.35 per cent notes maturing in 2020. It will also auction Rs 3,000 crore of 7.35 per cent debt due 2024.