Rupee closes at 1-month high of 81.32 per dollar

Mumbai:

The Indian rupee strengthened today with its biggest weekly gain in two months, as benign US inflation boosted hopes of a small rate hike by the Federal Reserve next month.

At the end of the session, the rupee touched a one-month high of 81.3250 against the dollar as against its last close of 81.55.

It was the local currency’s best week since the week ended Nov. 11, rising nearly 1.7% after breaking out of a narrow trading range.

A private bank trader said that public sector (PSU) banks bought the dollar around the 81.30 level on Friday, suggesting that 81.20 may hold the resistance level for the rupee.

Dealers also cited the current levels as attractive for importers to jump in.

The rupee and other Asian currencies advanced, while the dollar index extended losses to 102.00-level after US inflation data.

US consumer prices fell on a month-on-month basis in December for the first time in more than 2-1/2 years, fueling hopes that the Fed could hike rates by as little as 25 basis points (bps) next month.

Fed funds futures now show a near 9% chance of a big rate hike.

However, not everyone was convinced that the Fed would hike rates in line with market expectations, and this could lead to volatility in the rupee.

“We will not rule out a re-test of the 83-per-dollar level within the first quarter,” said Vivek Kumar, economist at Quantico Research, who predicted a 50 bps hike by the Fed.

Kumar said that India’s wide current account deficit will also remain one of the main reasons for the rupee’s weakness.

Meanwhile, the rupee forward premium rose in view of fall in treasury yields. The 1-year implied yield climbed to 2.26%, the highest since November 2022, traders said, adding that PSU banks were bidding up.

For the week, the 1-year yield was up around 21 bps.

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