The Indian Rupee climbed to 6-week highs of 94.28 per dollar, driven by strong central bank purchases and a slip in oil prices. Brent Crude slumped below the $80 per barrel mark. The currency finally closed trade at 94.52 per dollar.
Oil prices have tumbled by more than 32% from their March peaks, as Brent crude futures were trading near the $79 per barrel mark, while the US contract for crude, West Texas Intermediate, was quoted around the $76 per barrel level. Lower oil prices are rupee-positive as they help ease the pressure on country’s import bill
“Lower oil levels certainly helped, oil companies purchased during the first half of the trade,” said Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors. He added that heavy dollar buying by RBI was witnessed during the second half of the trade, during which the currency touched its fresh intraday high level.
Overseas investors pump into government bonds
The Indian central bank, recently undertook a spate of measures to increase foreign capital inflow, one of which includes removal of capital gains tax for FPIs on domestic bonds.
Since then the G-sec markets have witnessed huge foreign capital influx as over the past week overseas investors have pumped more than $2 billion into government bonds.
“RBI measures are expected to attract a total of $60-70b….. Government FII tax exemption would increase the foreign participation in bond markets and would also be incrementally positive for inclusion of Indian G-secs in global indices,” said Kunal Vora, Head of India Equity Research at BNP Paribas India in a report.
As per provisional NSE data for June 16, foreign investors were net purchasers of domestic equities worth Rs 383 crore.
Market eyes Fed rate action
Investors await the decision of the first FOMC meeting under the new US Federal Reserve chair, Kevin Warsh. While markets largely expect the central bank to hold rates steady within the 3.5% to 3.75%, the focus will be on the Fed’s tone.
Outlook for Rupee
Analysts expect currency to trade largely within the 94-94.50 range as they monitor the official signing ceremony between the US and Iran. By September they see scope for the currency to climb to the 93 levels against the US dollar.
The currency analysts noted that if geopolitical tension between Russia and Ukraine ease and oil slips to steady levels, the Indian rupee may even jump to the 92-93 range.
