Nomura sees bond market rally; rupee below 57/$

Forex dealers said dollar’s weakness against euro, which climbed to a seven-week high after the US Federal Reserve indicated it was leaning towards new economic stimulus measures, and dollar selling by exporters supported the rupee.

According to Vivek Rajpal of Nomura India, the currency seems to be driven more by the global risk backdrop, which has improved oflate. It looks more to be tracking the euro move than anything very fundamental. "The only good part is that now we have stopped underperforming. We are tracking a global risk backdrop for last one month or so. So that seems to be the key driver," he told CNBC-TV18.

The rupee had gained 8 paise to close at 55.49 against the US dollar yesterday on continued selling of the American currency by exporters and robust capital inflows.

"We were the biggest underperformer till sometime back because of problems specific to us, which has kind of stopped and that maybe because market is little hopeful on the reforms," Rajpal says.

And given our specific problems, which still needs to be resolved, it is not as if we specifically will outperform the rest of the Asian currencies though. "We expect INR to remain rangebound from hereon and we can see a gradual appreciation in INR over a couple of months," Rajpal believes

"We are looking INR to stabilize somewhere around 54 in two-three months time," he said.

The net supply is lower going ahead. Also, open market operations will again be on the table post October. The markets will start playing for it. Finally, there is no credit demand from the bank side, so banks will continue to invest in G-secs.

Meanwhile, the bond markets are pretty ranged between maybe 8.2 and 8.25 for sometime now. "My bias is to believe that we will see bonds rally from here. In July there was still some expectation of rate cut and August was a month of maximum supply without OMOs. So, these were the two factors which led to newer bond coming from 8.10 levels to 8.25 but from hereon I would be bias to believe that bonds should rally from the current levels," Rajpal said.