Rupee extends gains, opens 18 paise higher at 69.67

Extending its gains, the rupee on Friday opened 18 paise higher at 69.67 against the US dollar on the back of free fall in crude oil prices and heavy buying by foreign institutional investors (FIIs).

The domestic unit on Thursday breached the 70-mark for the first time since August 27 to end at a three-month high of 69.85 per US dollar.

It is clear that the rupee’s fortunes are intrinsically linked to oil prices. The recent drop in oil prices – from $83 to below $60 a barrel now – may have saved India at least $30 billion in oil bills, said experts. India imports about 1.2 billion barrels of oil every year.

The partially convertible currency strengthened more than 1 per cent from its previous close of 70.61 a dollar to end the day at 69.85. The rupee had strengthened as much as 69.78 a dollar in intra-day trade.

Currency dealers said the Reserve Bank of India (RBI) might have bought some dollars to recoup its reserves, while exporters were heavy sellers of the greenback. Some losses were triggered too due to the sharp movement of the rupee. The rupee has appreciated 5.15 per cent against the dollar in a month and is one of the best performing currency in Asia in November. However, year-to-date it is still down 8.56 per cent, making it one of the worst performing among major Asian currencies, said a Business Standard report.

Fall in crude prices is positive for India as decline in crude oil prices may push inflation and current account deficit lower. However, there is a lot of uncertainty in the global financial markets. Domestic equities are quite volatile too. "Hence we may see importers rushing to cover their exposure for 2-3 months. Near term range for the rupee is 69.50 to 71.00 levels," said Rushabh Maru - Research Analyst, Anand Rathi Shares.

Focus will now shift to India's GDP data, RBI monetary policy meeting, OPEC meeting and outcome of state election results. Hence, this a good opportunity for the RBI to rebuild its reserves. Hence over the medium term once again the rupee may move towards 72-73 levels, Maru added.