Sensex gains 1,000 points, rupee recovers to 65/dollar in 3 days
They say a week is a long time in politics. Traders might be tempted to borrow the oft-quoted idiom from political commentators considering the dramatic surge in the Indian rupee this week.
A week ago, traders were struggling with a sliding rupee and brokerages were outdoing each other in predicting the fall of the currency. But, the rupee's fortunes seemed to change this week, particularly after new RBI chief Raghuram Rajan announced a plan to rescue it on Wednesday.
That morning, the rupee had hit a low of 68.60 per dollar, not far from the all-time low of 68.85 hit on August 28. By Friday, the currency had gained over 5 per cent to close at 65.24 per dollar. It hit a high of 65.02 today. On cue the stock markets posted gains, with the BSE Sensex rising over 1,000 points in the last three sessions.
On Friday, in an interview to NDTV, the Prime Minister's top economic adviser C Rangarajan said the present level of the rupee is well corrected and the currency may stabilise at 65-66 levels. "I see stabilisation happening. It can stabilise around the current level and if capital flows come in it can further strengthen." (Read: Worst over for the rupee?)
And a Reuters poll of 17 strategists estimated the dollar to fetch 66 rupees at the end of September, roughly around its rate on Friday. (Read: Rupee seen bottoming)
Traders said the upsurge in the rupee was triggered by the barrage of steps announced by Dr Rajan late on Wednesday. Analysts said they had expected the 50-year-old academic and celebrated economist to do his homework, but had not expected him to detail so comprehensive a plan in his very first address as RBI governor.
He aimed straight at supporting the rupee and opening up markets, providing a shot of confidence for investors unnerved by the country's worst economic crisis in two decades. (Read: What Rajan did to lift rupee)
"The governor's action plan was well accepted by market participants," said Shakti Satapathy, a fixed income strategist with AK Capital.
Pathik Gandotra of Dron Capital had said earlier this week, "Today you are clouded by a bad sentiment. The government is running on a treadmill... it has to do something proactively and what the markets don't anticipate... Today it's a problem of sentiment rather than an economic problem."
Dr Rajan's bold announcements have helped sentiments. So much that analysts are now talking about levels unimaginable a week ago.
But, it's not only the sentiments that have changed. There's also real indication that the rupee may stabilise around current levels and even rise further. (Read: Raghuram Rajan effect? Rupee may rise to 63/dollar, analysts say)
The number of open contracts in domestic rupee futures has slumped this month, which is a sign that traders are removing their short positions in the currency.
The Fibonacci Retracement, a widely used technical tool that charts and predicts patterns in currency movements, signals an eventual move for the rupee to as high as 63 levels from current 66 levels.
The open interest futures positions has dropped from a peak of almost 1.2 million contracts on August 19 to 826,000 contracts as of Thursday, the day after Rajan's debut. Traders monitor the amount of open contracts as a way to gauge the number of short positions.
(With inputs from Reuters)