Rupee rebounds to one-month high against dollar as equity markets recover

Date:	10-11-2016
Subject:	Rupee rebounds to one-month high against dollar as equity markets recover

The Indian rupee on Wednesday rebounded and was trading over one-month high against the US dollar, after local equity markets recovered over 700 points but were still down 550 points.

At 1.35pm, the rupee was trading at 66.42 a dollar, up 0.3% from its previous close of 66.62. The home currency opened at 66.79 against the US dollar and touched a high of 66.41, a level last seen on 4 October. So far this year, it fell 0.5%.

India’s benchmark Sensex index was trading at 27,033.70 points, down 2.02% or 557.44 points from its previous close. So far this year, it has gained 5%.

In a surprise move intended to eliminate black money and the growing menace of counterfeit currency notes, the Union government on Tuesday, effective midnight, scrapped currency notes of Rs500 and Rs1,000 denominations.

India’s 10-year bond yield hit over a seven-year low after the government banned Rs500 and Rs1,000 bank notes in an attempt to curb black money.

10-year bond yield fell 8 basis points, its steepest fall since 12 September. The 10-year bond yield was at 6.664%— a level last seen on 9 June 2009—down 14 basis points from its previous close of 6.798%. Bond yields and prices move in opposite directions.

“The market is expecting that the large cash in circulation will come back in the banking system and eventually it will increase the demand for SLR securities,” said Soumyajit Niyogi, associate director, India Ratings. SLR, or statutory liquidity ratio, is the proportion of deposits that banks have to invest in government securities.

“This is also likely to increase tax collections which will help achieve the fiscal deficit target,” he added.

Foreign institutional investors (FIIs) have sold $647.40 million in debt and bought $6.74 billion in equity till date this year.

Emerging market stocks and currencies slumped amid a global selloff after Donald Trump won the US presidency in a stunning upset. Japanese yen was up 2.8%, China renminbi 0.2%, Thai baht 0.18% and China offshore rose 0.11%. However, South Korean won was down 1.3%, Malaysian ringgit 0.55%, Indonesian rupiah 0.39% and Singapore dollar fell 0.28%.

The dollar index, which measures the US currency’s strength against major currencies, was trading at 96.896, down 1% from its previous close of 97.861.