Rupee gains 11 paise to end at over 1-week high on foreign fund inflows

The rupee appreciated by 11 paise to settle at over one-week high of 74.16 against the US dollar on Friday, supported by positive domestic equities and sustained foreign fund inflows.

At the interbank forex market, the domestic unit opened at 74.15 against the US dollar and touched a high of 74.09 and a low of 74.21 in the day trade.

It finally settled at 74.16 against the greenback, registering an increase of 11 paise over its previous close. The rupee had settled at 74.27 against US dollar on Thursday.

"The rupee is currently drawing a lot of support from equity inflows and the fact that the dollar globally is on the backfoot," said Sugandha Sachdeva, VP-Metals, Energy & Currency Research, Religare Broking.

Sachdeva further said that going forward, the rupee has scope to further appreciate till 73.80. However, beyond that, the RBI would step in to curtail its move, while dollar index may also rebound given the uncertain growth outlook in the US.

"That should put some downward pressure on the rupee".

The domestic unit is expected to trade in the 73.80 to 75 band till the end of this month, Sachdeva noted.

Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.08 per cent higher at 92.36.

On the domestic equity market front, the 30-share BSE benchmark Sensex closed 282.29 points higher at 43,882.25, while the broader NSE Nifty rose 87.35 points to settle at 12,859.05.

Foreign institutional investors were net buyers in the capital market as they purchased shares worth Rs 1,180.61 crore on a net basis on Thursday, according to provisional exchange data.

Brent crude futures, the global oil benchmark, rose 0.38 per cent to USD 44.37 per barrel.

On a weekly basis, the rupee gained 46 paise.

"Rupee consolidated in a narrow range but rose marginally after a late recovery in domestic equities. FIIs continued to pour in funds and inflow has been to the tune of USD 5.8 billion in this month suggesting further appreciation for the currency," said Gaurang Somaiyaa, Forex & Bullion Analyst, Motilal Oswal Financial Services.

Somaiyaa further said that the increase in the number of COVID cases across the globe is disturbing the overall market sentiment and could weigh on the riskier assets that have got a boost after few drug makers found success for the COVID vaccine.

"USD/INR turned stronger tracking a weak dollar amid hope that rising virus infection in the US may force the country's administration to introduce more stimulus," said Devarsh Vakil, Deputy Head of Retail Research, HDFC Securities.

Vakil further noted that optimism around additional fiscal aid helped ease market concerns about how rising COVID-19 cases and new social-distancing restrictions might impinge on the economic outlook, leading to selloff in safe heaven assets and weakness in dollar index.

"RBI as expected supported the rupee near 74.12 mark and bought dollars in the spot market. 74 is a strong support for the USD INR pair and the pair is likely to trade in 74 to 74.5 range for short term," he noted.

According to Saif Mukadam, Research Analyst, Sharekhan by BNP Paribas, Indian rupee appreciated on the back of weakness in the dollar and steady FII inflows. Further, rise in risk appetite in the domestic market supported the rupee.

"Dollar showed weakness on optimism over fiscal stimulus. However, sharp upside was prevented as global market sentiments remained fragile on worries over economic recovery due to mounting corona virus cases across globe," Mukadam said.