Rupee gains for second day as dollar dips against other peers

The rupee rose for the second straight day on Thursday boosted by the dollar’s sharp losses against major currencies and a rebound in the Indian share market. The local currency closed at 47.1250/1350 per dollar, off the day’s low of 47.35 and little stronger than Wednesday’s close of 47.16/17. On Monday, the rupee had dropped as low as 47.3850, its weakest since June 7.

“The euro came up quite a bit from afternoon levels, broadly the dollar has weakened today,” said Naveen Raghuvanshi, an associate vice-president at Development Credit Bank. “Equity markets turned positive across the globe as there were rumours the stress tests on Friday are going to be a cakewalk at least for some of the big European banks.”

“The rupee could probably open below 47 on Friday if Dow stays positive and the overall bullish tone continues,” he added. The index of the dollar against six major currencies was down 0.9%. The dollar fell close to a seven-month low against the yen on Thursday on downbeat comments from Federal Reserve chairman Ben Bernanke while better-than-forecast euro zone data buoyed the euro.

Buying or selling of stocks by foreigners is a key factor that drives the rupee. So far this year, foreign funds have bought a net $8.8 billion worth of shares, adding to record inflows of $17.5 billion last year. One-month offshore non-deliverable forward contracts were quoted at 47.35, weaker than the onshore spot rate.

In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange and MCX-SX both closed at 47.1775, respectively, with the total traded volume on the two exchanges at around $5.1 billion.