Rupee seen extending 2-week gains on fund inflows

The rupee may continue its winning rally against the dollar, as fund inflows are expected to be strong this week as well. However, the dollar needs of public sector oil companies may limit the gains, traders say.

On Friday, the rupee closed at 44.33, registering a 0.6 per cent or 26 paise appreciation against the dollar in a week. The rupee has advanced 1.5 per cent against the greenback in the past two weeks because of fund flows worth nearly $2.2 billion in domestic equities.

“We expect the rupee will continue to remain strong, as more fund flows across sectors are seen this week. We expect the rupee to trade between 44.25-44.50 against the dollar this week,” says Parthasarthy Mukherjee, president, treasury and international banking, Axis Bank.

Traders say public sector oil companies are regularly buying dollars, which may cap the Indian currency’s gains this week. New York crude oil was trading above $98 a barrel towards the end of last week.

The markets will closely track movements in the euro-dollar pair as the European Central Bank raised its key interest rates 25 basis points to 1.5 per cent last week. This is the second rise in the last four months. “The markets had expected the euro to strengthen after the European Central Bank increased rates but it is still volatile,” says Sandeep Gonsalves, forex consultant and dealer, Mecklai & Mecklai.

The euro closed at 1.43 against the dollar on Friday compared to a close of 1.44 on Thursday and 1.45 a week ago.

In the forwards market, the three-month rupee-dollar non-deliverable forwards (NDFs) closed at 44.86 on Friday as compared to a close of 44.81 on Thursday. “Foreign banks will take advantage of the arbitrage opportunity in the three-month NDF segment, which will further help the rupee. We expect it to trade between 44.10-44.40 against the dollar next week,” says Gonsalves.