The rupee rose beyond 64 a dollar on Wednesday as equity indices hit record highs on huge buying interest from foreign investors.
To lock the rupee at these levels, large importers swept in to hedge in the forward market, pushing rates at the longer end (one year) by six to seven paise. The partially convertible rupee strengthened to 63.93 a dollar, its highest since August 2015. It then closed at 64.07, against Tuesday’s of 64.26.“There was a massive dollar selling interest. Part of the flow was related to NTPC’s Rs 2,000-crore masala bond issuance, in which investors converted their dollars to rupees,” said a currency dealer with a foreign bank.
There were also some margin calls on positions that bet the rupee would depreciate and not breach the technical level of 64.15. The currency market witnessed a fair amount of two-way movement; the Reserve Bank of India might have intervened through state-owned banks, said dealers.
In Asia, the rupee was the best performing currency on Wednesday, strengthening 0.25 per cent. Most other currencies in the region lost against the dollar. The dollar index, which measures its strength against major global currencies, strengthened 0.32 per cent. According to most dealers, the rupee’s movement was purely driven by portfolio flow and the currency might also lose its value quickly, if the flows reverse. So far this calendar year, net inflow in the debt and equities markets has been $13.97 billion. “What we are now seeing is that volatility is back. Earlier, it was a stable regime; now, the movement in the rupee is catching a lot of people off-guard,” said Samir Lodha, managing director of QuantArt, a treasury management consultancy.