Weak dollar helps rupee gain for a third day

Capital inflows help, with new currency swap window fetching the Reserve Bank of India $5.6 billion so far

The rupee turned stronger for a third day in a row on a weaker global dollar, capital inflows and selling by exporters.

Opening slightly weaker in the morning at 61.88 to the dollar (it had closed on Thursday at 61.74), it closed on Friday at 61.44.

The dollar struggled against global currencies due to the continued political impasse in America which has shut the financing of large parts of the US government. “The rupee was seen gaining amid bets that the prolonged shutdown of the US government would further delay any tapering of the US Federal Reserve's massive stimulus,” said Abhishek Goenka, chief executive officer (CEO) of India Forex Advisors.

Dollar sales by exporters, amid positive local stocks, also supported the rupee, said currency dealers and treasury executives.

The 30-share S&P BSE Sensex, the exchange’s bellwether, closed up 13.88 points after a choppy session, as talks on the US budget and debt limit continued without an indication of a resolution. Foreign institutional investors bought a net $188.3 million of shares on Thursday, showed data from the Securities and Exchange Board of India.

“The trading range for the dollar-rupee pair is expected to be within 61.00 to 62.50,” said Pramit Brahmbhatt, CEO of Alpari Financial Services.

The change in sentiment for the rupee was also facilitated by dollar flows into the Reserve Bank of India (RBI)’s kitty. As a step to halt a sharp slide, RBI had recently offered banks a currency swap facility for deposits raised from Indians living abroad and borrowings. The twin swap window has fetched $5.6 billion as of now, RBI Governor Raghuram Rajan said in Raipur after a board meeting.

The rupee’s value might come under pressure ahead of the November-December elections in some states and for the Lok Sabha (next year). The three-month forward rate for the rupee was 63.13 to a dollar. The three-month rate non-deliverable forward was 62.98 in the market. A Bloomberg survey of senior currency forecasters says the rupee’s rally will halt as Prime Minister Manmohan Singh’s focus on elections leaves the central bank alone to manage a crisis of investor confidence.

The rupee will end calendar year 2013 little changed, at 61 to a dollar, after surging 9.2 per cent in the past month to 61.4475, said Nomura Holdings, which had the most accurate predictions in the past four quarters, data compiled by Bloomberg show. The gain was the best among 24 emerging markets in the world. Second-ranked (in the accuracy survey) Canadian Imperial Bank of Commerce expects a drop to 64.