Rupee Posts Biggest Intraday Gain In Over A Week Ahead Of Fed Minutes

The rupee closed higher on Wednesday marking its biggest single-day gain in more than one week spurred by dollar inflows, as improved risk appetite drove a rally in equities while the greenback posted losses.

Coming off an extended weekend break, the partially convertible rupee closed at 79.4450 in its best session since August 5, according to Reuters. The currency had ended at 79.6550 on Friday. India's foreign exchange markets were shut on Monday and Tuesday.

The rupee recovered from last week's poor performance because of dollar credits obtained by Indian exporters after the long weekend, a positive risk climate, and lower oil prices, according to traders.

"After nine consecutive months of outflows, having witnessed nearly $3 billion in foreign inflows so far in August despite global geopolitical and economic turmoil has been an achievement and the biggest supporting factor for the rupee," Amit Pabri, managing director at Mumbai-based consultancy CR Forex, told Reuters.

"As long as the USD/INR pair remains in a consolidated range of 78.80 to 80.10, buy on dips and sell on uptick remains an ideal strategy to follow for near-term exposures," he added.

Bloomberg showed the rupee was last changing hands at 79.4475, compared to 79.5363 close on Friday. The Indian currency traded in 79.2500 to 79.4800 per dollar range, according to the news agency. 

The rupee gained 29 paise to settle provisionally at 79.45 against the US dollar as heavy buying in domestic equities and persistent foreign capital inflows strengthened investor sentiment, according to PTI.

Following a string of weak economic reports from the world's leading economies, oil prices plunged to a six-month low to trade around $92 per barrel, raising worries about how a potential recession may affect petroleum demand.

Since India is the third-largest importer of oil and has a sizable trade deficit, rising oil prices this year was one of the greatest factors impacting on the rupee.

The Federal Reserve's policy meeting minutes from its July meeting are expected later today, and the markets are waiting for any hints they may include about how quickly interest rates may increase going forward.

Prior to that announcement, the dollar remained shaky, recording modest gains during the European trading day. 

Still the rupee's gains from the session were capped by expected dollar outflows by corporates and the US Federal Reserve's still hawkish outlook.

"The fall in oil prices and risk on sentiment has helped the rupee to appreciate. However, there are corporate outflows lined up of over a billion dollars that will create demand for the dollar in the system," Anindya Banerjee, head of research for forex and interest rates at Kotak Securities, told Reuters.

Mr Banerjee pointed to KKR and Co. Inc. selling its entire stake in Max Healthcare Institute Ltd for around 94 billion rupees ($1.18 billion).

Meanwhile, as Europe and China continue to deliver dismal economic statistics, global FX indications are boosting the dollar, according to Mr. Banerjee.

China's economy and consumer spending were poor on Monday, which prompted the central bank to lower key lending rates. The offshore Chinese yuan fell below 6.80 to the dollar earlier this week for the first time since May.

Traders eye the US Federal Reserve's July meeting minutes, which are due later on Wednesday. Following the less-than-expected US inflation figures last week, Fed officials have refuted claims that interest rates are about to peak.

"The minutes to the July meeting should show Fed officials are open to a 50 basis points or a 75 basis points hike at the September meeting, depending on the data," Tom Kenny, senior economist at ANZ Research, said in a note.

"We also expect discussions to reveal the higher-for-longer viewpoint for the policy rate."

It is difficult to be bullish on the rupee ahead of the Fed minutes, Arnob Biswas, head of research at SMC Global Securities, told Reuters.