Continuing to move higher for a second straight day, the rupee edged higher to 71.21 against the US dollar on Wednesday amid gains in domestic equity markets. After starting the session at 71.23 against the greenback, the rupee rose as much as 0.18 per cent to 71.18 at the strongest level in morning deals. Strength in the dollar overseas however limited the gains for the rupee. The rupee is expected to move sideways within a narrow range until the presentation of Union Budget 2020 in Parliament on February 1, say analysts.
The fast-spreading coronavirus outbreak in China is stoking fears about more trouble for the global economy.
The International Monetary Fund this month trimmed its global growth forecast for 2020 by 0.1 percentage point to 3.3 per cent, citing sharper-than-expected slowdowns in India and other emerging markets.
Domestic equity markets registered sharp gains on Wednesday, with the S&P BSE Sensex benchmark index soaring more than 300 points to as high as 41,300.03 in the first hour of trade, amid gains across sectors led by auto and metal shares.
Analysts say the markets are likely to remain volatile until the government presents the Union Budget on February 1.
“Until Budget, it looks like the pair will continue trading in a tight range of 70.80-71.50 levels and further direction shall be determined after the budget,” said CR Forex Advisors, a forex advisory firm, in a note.
The 10-year government bond yield was at 6.59 per cent in morning trade.
Crude oil prices rose for a second day on Wednesday, standing on firmer ground after a five-day rout on talk that OPEC could extend oil cuts if a new coronavirus hurts demand, while data showing a decline in US stockpiles also helped steady prices.
Brent crude futures – the global benchmark for crude oil – were last seen trading 1.43 per cent higher at $60.36 a barrel.
The US said on Tuesday it was developing a vaccine against the deadly virus that originated in China.
Analysts also awaited the outcome of the US central bank’s policy meeting due later in the day.
“If the Federal Reserve highlights a weakness in manufacturing and business fixed investment and sounds dovish, we could see the US dollar give up some of its gains,” said another forex advisory firm, IFA Global.
“Indication of rates remaining on hold for a prolonged period would be positive for emerging market assets and risk in general,” it added.
Financial markets that have been hit by the spread of the new virus out of China and its rising death toll are taking stock of the economic fallout, helped by comments from the head of the World Health Organization supporting Beijing’s efforts to beat the outbreak.
The dollar index – which gauges the greenback against six major currencies overseas – rose as much as 0.08 per cent to touch 97.9430, limiting the gains for the rupee.
On Tuesday, the rupee had registered mild gains to turn positive for the calendar year.