Rising for the fifth straight session, the rupee on Wednesday appreciated by 11 paise to close at more than a two-month high of 73.31 against the US dollar on the back of foreign fund inflows and a weak greenback in the global markets.
At the interbank forex market, the domestic unit opened at 73.35 against the US dollar and witnessed an intra-day high of 73.26 and a low of 73.36.
The local unit finally settled at 73.31, registering a rise of 11 paise over its previous close. The rupee had last closed at this level on October 13. On Tuesday, the rupee had settled at 73.42 against the American currency. In the last five trading sessions, the Indian rupee has gained 53 paise.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.21 percent to 89.80. On the domestic equity market front, the BSE Sensex ended 133.14 points or 0.28 percent higher at 47,746.22, while the broader NSE Nifty jumped 49.35 points or 0.35 percent to 13,981.95.
Foreign institutional investors were net buyers in the capital market as they purchased shares worth Rs 2,349.53 crore on Tuesday, according to provisional exchange data. Brent crude futures, the global oil benchmark, rose 0.80 percent to USD 51.50 per barrel.
"Indian rupee appreciated on the weaker dollar index and sustained foreign fund inflows. The rupee was also supported by the other Asian currencies which strengthened on back year-end fund flows," said Devarsh Vakil, Deputy Head of Retail Research, HDFC Securities. Vakil further said that the prospect of a global recovery in 2021 buoyed risky assets and emerging market currencies.
"Looking at the weakness in the dollar index and foreign fund inflows into Indian equity markets, the rupee is expected to go back to August lows of 72.75 in the next few sessions," Vakil noted. After a pandemic ravaged year, the risk sentiments are ending 2020 on a positive note on the back of US fiscal stimulus, Brexit deal, and coronavirus vaccine, said Rahul Gupta, Head of Research- Currency, Emkay Global Financial Services.
"With the viable vaccine's ability to battle even the transmissible variant of the virus, the worries of further lockdowns have been eased. So what happens to Indian rupee largely depends on how the major economies control the virus in 2021," Gupta said. According to Sriram Iyer, Senior Research Analyst at Reliance Securities, "the Indian rupee continued to trade higher against the US currency amid dollar selling by foreign banks and a broad uptick in Asian currencies".
"The dollar's fall was attributed to more position-building amid expectations that the currency is likely to fall more next year. A synchronized recovery in the world economy combined with expectations that interest rates in the US will remain low for a long time will likely prompt the dollar to extend this year's losses," Iyer said.