Rupee leaps to 61.65 per dollar on Fed’s stimulus relief 

The rupee jumps over 2.5% compared with its previous close, in line with other emerging markets currencies 

 

All emerging markets equity indices rallied, pushing up the exchange rates of their respective currencies. Photo: Pradeep Gaur/Mint

 

Mumbai: The Indian rupee on Thursday opened significantly stronger from its previous close, in line with other emerging market currencies, after the US Federal Reserve said it will continue to buy bonds worth $85 billion a month to support the US economy and the banking system.

The Indian currency opened 2.51% higher at 61.8350 per dollar against Wednesday’s close of 63.3850, according to Bloomberg data.

At 10.30 am, the rupee was trading at 62.01 a dollar after strengthening as much as 61.65 a dollar in morning trade, while the equity benchmark Sensex was up 535.03 points at 20,497.19 points.

Technical charts indicate the rupee will strengthen further.

“For the day, we are expecting rupee to trade between 61.35 and 62.15 a dollar. Exchange rate at 62.20 is a good resistance level. If the exchange rate manages to hold there, rupee will go to 60.70 level,” said a senior dealer with a foreign bank.

The dollar index, which tracks the US currency’s strength against major global currencies, fell 0.05% to 80.203 from its previous close of 80.237. The dollar fell to a seven-month low against the euro and a six-month low against the Japanese yen after the Fed’s announcement.

All emerging markets equity indices rallied, pushing up the exchange rates of their respective currencies.

The outcome of the US Federal Reserve’s two-day meeting surprised the markets, which were expecting some modest cut in the asset-purchase programme.

“The surprising Fed FOMC (Federal Open Market Committee) decision is supportive of risk appetite in emerging markets as it reduced the policy-induced tail risks significantly, in our view,” said Barclays Bank in a research note.

“This should be particularly supportive for the currencies and rates markets of countries running current account deficits,” said the report. The Fed’s decision may prompt the Reserve Bank of India (RBI) to ease its liquidity tightening measures, too, when it announces its monetary policy decision on Friday.

Currency dealers say the rupee is poised to strengthen from the present level.

“Earlier the rupee move was based on fears of fundamentals. Now it is driven by fears of correction. Clearly the exporters sitting with their dollars missed a chance,” said Satyajit Kanjilal, head of Forexserve, a currency consulting and treasury management firm.

“Now that the dollar demand by the oil marketing companies are met separately through a swap window and stock markets rallying, rupee should strengthen more,” said Kanjilal.

Harihar Krishnamurthy, head of treasury at First Rand Bank, said the Fed’s decision clearly surprised the markets as investors had priced in a $10 billion cut in the US bond purchase programme.

“Now it is fairly clear that the cut may not even come in this calendar year. Coupled with this, India’s trade deficit has improved, and foreign investors have started becoming net buyers of Indian stocks after being net sellers for three months. Rupee can be fairly expected to go to 60 soon,” said Krishnamurthy.

 

 

TOUHID HUSSAIN

PGDM 3rd SEM