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What triggered the rupee’s gain Monday

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MUMBAI: The rupee has gained against the dollar Monday as the diminishing threat of global trade war has lifted investor confidence on emerging markets for now.

The local unit strengthened 0.23% to close at 68.72 a dollar Monday mirroring gains in other emerging market currencies like Chinese yuan or Korean won.

“The latest round in the trade fight [between US and China] is over,” said Anindya Banerjee, currency and interest rate analyst at Kotak Securities. “Globally, the rupees fate is now tied to the yuans movements. China, being the largest emerging market economy and financial market, has an impact on all of Asia as well as other emerging markets.”

During the day, the rupee rose as much as 0.4%, but it later erased some of its gains amid sudden dollar demand coming from large corporates.

“Some large corporates were seen going long (buy) on the dollar in the exchange traded futures market, where they were booking one-month maturity contracts,” said a currency dealer from a large private bank.

Although the rupee strengthened Monday, but it could well be a short-lived phase. The rupee, which hit record low at 69.09/$ on June last week, is on a weakening trend amid a raft of global and domestic factors.

Back home, the higher-than-expected prices of farm produces have threatened to increase retail consumer prices or inflation, the key matrix that may prompt the RBI to increase interest rates.

Moreover, the elevated global oil prices too add to domestic inflation as India meets three-fourths of its oil needs through overseas shipments.

Rising interest rates take away sheen from existing debt papers with foreign portfolio investors selling those.

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