Rupee recoups most losses vs US dollar as equities bounce back smartly; gilts steady

NEW DELHI: After the rupee weakened sharply earlier on Tuesday, it recouped most losses versus the US dollar to end the day just marginally lower as domestic equities saw a smart rebound and as some banks sold the greenback on behalf of exporters, dealers said.

The partially convertible rupee ended at 74.4225 to a dollar as against 74.4050/$1 at the previous close. The local currency, which had opened at 74.4800 per dollar, moved in a band of 74.3775-74.5700 per dollar in the course of the day’s trade.

The rupee had gotten off to a weak start on Tuesday as the US dollar firmed up to a 16-month high on anticipation of the Federal Reserve tightening monetary policy sooner rather than later; a view that was reinforced by the re-appointment of Chairman Jerome Powell, dealers said.

However, the US currency shed some gains later in the day, which in turn helped the local unit gain some ground, dealers said.

The dollar index, which measures the US currency against a basket of six major rival currency pairs jumped past the crucial 96.50 level on Tuesday as compared to the previous week’s level of 96.06. The Index was last 96.41.

“Today (Tuesday) was quite a see-saw in terms of trading,” a dealer with a foreign bank said on condition of anonymity.

“Equities were taking a hit in the morning; the dollar was at a more-than-one-year high and everyone expected the rupee to settle past the 74.50/$1 level. It was mainly the dollar giving up gains, exporter sales past 74.50/$1 and the recovery in equities that pulled the rupee back,” he said.

Benchmark equity indices recovered early losses Tuesday, with the Sensex snapping a four-day losing streak to end 198 points higher while the Nifty50 rose past 17,500 points.

Currency dealers also welcomed a sharp decline in global crude oil prices as the phenomenon has a favourable impact on India’s trade deficit and inflation, given that the country is a massive importer of the commodity.

After dropping to a seven-week low on Monday, crude oil prices fell again Tuesday as investors worried about demand following a resurgence of COVID-19 cases in Europe and as some countries planned to release emergency reserves to tackle a recent surge in the price of the commodity.

Government bonds settled largely steady with the yield on the 10-year benchmark 6.10 per cent 2031 paper settling one basis point higher at 6.36 per cent.

Bonds too had weakened in early trade due to a rise in US Treasury yields and fear of outflows of foreign portfolio investment from the market amid talk of higher interest rates in the US.

However, dealers preferred not to lighten portfolios beyond a point as the fresh outbreak of Covid cases in Europe could pose new risks to global and domestic growth, potentially making a case for the Reserve Bank of India to continue with policy accommodation for longer, dealers said.

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