Rupee surges 35 paise vs dollar on year-end exporter activity, firm equities

The partially convertible rupee strengthened well past the 75 per dollar-mark, settling at 74.65 as against 74.9950 at previous close. During the course of the day, the Indian currency, which had opened at 74.91, moved in a band of 74.6050-74.94 against the greenback.

Volumes were shallow as attendance at trading desks was thin ahead of New Year holidays, dealers said.

The rupee also received a boost from global weakness in the US currency, with the dollar index coming close to falling below the 96 mark. The index, which measures the dollar against six major rival currencies, was last at 96.03. Earlier in the month, the index had risen to a near-18-month high of 96.99.

The dollar index has retreated from those highs as fading worries about the global economic impact of the Omicron strain of the coronavirus have tempered global demand for the safe-haven US currency.

A firm showing by domestic equities further bolstered the rupee today, dealers said. On Tuesday, the BSE Sensex ended 477.24 points or 0.83 per cent higher at 57.897.48. The Nifty50 added 147 points or 0.86 per cent to settle at 17,233.25.

Recent dollar-selling interventions by the Reserve Bank of India, which has a considerable arsenal of foreign exchange reserves, have also instilled confidence in the domestic currency and ensured sufficient dollar liquidity in the spot market during the year-end period, a time which typically witnesses a crunch of dollars, dealers said.

Latest data showed that the RBI’s foreign exchange reserves reduced to $635.67 billion as on December 17 versus $635.83 billion on December 10, suggesting net dollar-selling interventions to the order of around $160 million for the week.

The central bank’s interventions have helped the rupee script a dramatic turnaround from the first fortnight of December when the domestic currency lost more than a per cent and touched an eighteen-month low of 76.23/$1 (on December 15).

“The movement this week and the last week has been amid low volumes; exporters have been compelled to lock in certain levels because so many technical breaches have occurred; from heading to 76.50/$1, we are now close to 74.50/$1,” a dealer with a foreign bank said on condition of anonymity.

“Once trade volumes go back to normal we could see a degree of re-adjustment because from a REER (real effective exchange rate) perspective we could still some correction, given inflation, trade deficits and high oil prices,” he said.