The Indian rupee hit a two and a half year high in trade on Tuesday, as a weaker dollar pushed up Asian currencies.
The rupee gained for the fourth straight session and closed at 63.48 against the U.S. dollar, compared to its previous close of 63.68. This is the strongest the Indian currency has traded since July 17, 2015.
Much of the recent gain have come in response to a weaker dollar. The Dollar Index fell below the 92 mark on Tuesday as the euro strengthened. According to traders, the move in the overseas currency markets prompted banks and exporters to sell the dollar, leading to gains for the rupee. Over the last four sessions, the rupee has appreciated by 62 paise.
“The Dollar Index continues to remain weak or rangebound,” said Viraj Desai, forex strategist at Emkay Global Financial Services while explaining the strength in the rupee. “Dollar inflows related to private placements and lack of outflows from the bond market also continue to support the rupee,” Desai added. He expects the rupee to face some resistance near 63.50 levels.
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The Indian currency also remains supported by fundamentals and fund flows. The rupee gained 6.5 percent in 2017 and saw annual appreciation for the first time since 2010. Fund flows have remained strong with Indian equity and debt markets getting a total of Rs 2 lakh crore in the just concluded calendar year. High real interest rates will likely continue to lure foreign investors to the Indian debt market, while an expected pick-up in earning growth may drive funds into the equity markets.
The rupee appreciated even though the central bank intervened regularly through the year and added to its foreign exchange kitty. Reserves jumped by $3.5 billion to touch a new high of $404.9 billion for the week ended Dec. 22, RBI data released on Friday showed.
Nomura Global Market Research believes the rupee will hold on to its strength in 2018. It expects the Indian currency to strengthen to 63 against the U.S. dollar in the first half of 2018. DCB Bank, too, expects the rupee to remain strong on foreign inflows and expects it to trade in a range of 63.80-64.50 in the January-March quarter.
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