Rupee up in wake of US debt settlement

Experts hope for a stable rupee in near-term

The rupee appreciated on Thursday to close at a near one-week high on the back of dollar sale by exporters and on expectations that the US may postpone tapering of the stimulus programme. According to experts, even if month-end dollar demand from importers emerges, dollar flows will ensure that the rupee does not weaken significantly.

On Thursday, the Indian currency closed at 61.22 against the dollar, compared with the previous close of 61.85 on Tuesday. On Thursday, the rupee opened at 61.56 and, during intra-day trades, touched a high of 61.22 and a low of 61.72 against the dollar. On Wednesday, the foreign exchange market was shut on the occasion of Bakri Eid. The currency had ended at 61.08 against the greenback on October 11.

On Wednesday, the Republican and Democratic leaders of the US Senate struck a cross-party deal to end a partial government shutdown and raise the US debt limit.

According to Standard & Poor's estimates, the shutdown has taken $24 billion out of the US economy, while Fitch warned it’s reviewing its 'AAA' rating on US government debt for a possible downgrade. 'AAA' signifies extremely strong capacity to meet financial commitments.

“The US government shutdown has been evaded only temporarily. This may result in postponement of third round of quantitative easing (QE3) tapering, which is positive for the rupee. In the near term, the rupee may trade in the range of 60.50 to 62.00 per dollar,” said S Srinivasaraghavan, head of treasury at Dhanlaxmi Bank.

However, despite Thursday’s strengthening, the rupee has weakened by almost 13 per cent since the start of this financial year. The Indian currency had touched an all-time low of 68.85 on August 28 due to heavy month-end dollar demand from importers.

However, the current situation seems to be more stable as the Reserve Bank of India (RBI) has opened the special window for public sector oil marketing companies to meet their dollar requirements. Besides, RBI has also taken various steps to attract dollar flows into India.

“Even if month-end dollar demand from importers approached, there will be dollar flows to support the rupee. I see a trading range of 60.50 to 61.50 for the rupee against dollar for the rest of the month,” said N S Venkatesh, chief general manager and head of treasury at IDBI Bank and chairman of Fixed Income Money Market and Derivatives Association of India.

Meanwhile, government bond yields fell for the first time after rising for three straight trading sessions. This helped improve the outlook for emerging markets such as India. The yield on the 10-year benchmark government bond ended at 8.60 per cent on Thursday, compared to previous close of 8.66 per cent on Tuesday.