Rupee hits 5-1/2-month high; strong euro aids

The rupee climbed to its highest level in five-and-half months on Wednesday, tracking the euro's gains against the dollar and as foreign funds stepped up purchases of Indian equities.

The partially convertible rupee ended at 44.16/17 per dollar, after touching 44.1425, its strongest since October 15. It had closed at 44.42/43 on Tuesday.

"43.90 will be the bottom I feel. USD/INR has got good support at 43.90-44.00. This is the key level to watch. I expect this level to hold..." said Vikas Chittiprolu, a senior forex dealer with Andhra Bank.

"I expect a quick bounce to 44.50 before 43.90 level is taken off," he said.

Foreign funds have bought USD 2.8 billion of Indian shares since the start of March, after being net sellers in the first two months of the year.

The euro also rose to a 14-month high of USD 1.4315 on steady buying by Asian central banks, with large option barriers cited at USD 1.4350 and USD 1.4400 which could cap gains in the near term.

The euro has been buoyed by policymakers' signals that the European Central Bank will raise its benchmark interest rate on Thursday.

The index of the dollar against six major currencies was down 0.42% at 75.571 points at the close of local trade. It had been at 76.037 points at the close of the local forex market on Tuesday.

The rupee shrugged off weak local shares that dropped 0.4% as investors took profits after a sharp rally seen since last month, with fears of a spike in inflation fuelled by higher global oil prices also weighing on sentiment.

Traders said strong Asian peers also aided the rupee.

Most emerging currencies were stronger against the dollar.

The one-month onshore forward premium was at 26.25 basis points, down from 27.50 basis points on Tuesday, the three-month was at 79.75 basis points versus 80.00 basis points and the one-year at 301.25 basis points versus 295.25 basis points.

The one-month offshore non-deliverable forward contracts were quoted at 44.37, weaker than the onshore spot rate.

In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange were at 44.3425, 44.3400 and 44.3475 respectively, with the total volume at about USD 6.3 billion.