Dollar sales by banks help rupee recover from early lows

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Substantial dollar sales by state-run institutions helped the rupee recover from its early lows to close the day 15 paisa stronger at 74.43 despite concerns over rapid policy tightening in the US and seven-year-high crude oil prices.

The rupee’s appreciation was also supported by likely dollar inflows due to overseas debt fund raising by corporates, currency traders said.

They said that further gains were capped amid weak risk appetite in the region. To be sure, yields have surged across tenors in the US, with odds shortening on a fourth rate increase in 2022 itself as the Fed seeks to restrain inflation that has soared to its highest in about four decades.

“Heavy dollar sales by PSUs triggered stop losses of speculators and pulled the pair down from 74.70 to 74.40 levels,” said Anindya Banerjee, currency analyst at Kotak Securities. Shiram Iyer, senior research analyst at Reliance Securities, however, pointed out that expectations of faster Fed rate increase and stronger crude oil prices kept the appreciation bias limited.

Banerjee said that factors such as multi-year crude oil prices, surging US real yields and volatility in the equity markets are also likely to keep the rupee on a roller coaster. Emkay

expects the currency to see the 74.95/75.20 levels in the coming weeks. Support on dips is seen around 74.40 on the spot, it said.

The local unit opened weaker at 74.66 a dollar against its previous close of 74.58 and depreciated further to 74.70 in early trades, tracking the rise in crude oil prices that hit their highest since 2014. There was pressure on the global crude oil market following Tuesday’s explosion on an oil pipeline that carries more than 450,000 barrels a day from Iraq to Turkey.

Turkey resumed crude oil flows on Wednesday after the fire in the aftermath of the explosion was extinguished.

Regional currencies were mixed while India’s BSE Sensex dropped 1.1%, extending Tuesday’s fall. Indian bond yields closed lower amid short covering and likely foreign inflows into bonds, said Iyer. The benchmark 6.10% bond ended at 6.60%, versus a 6.63% close in the previous session.

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