From being one of the worst-performing currencies in the previous month, the rupee has bounced back to be an outperformer among emerging market peers with the second wave of Covid ebbing in many cities. On Tuesday, the rupee closed 19 paise higher at 72.78 against the dollar. The local currency opened at 72.85 and touched an intraday high of 72.75 before closing a little lower.
The rupee was also supported by weakness in the dollar index, which measures the performance of the greenback against major currencies. The dollar index fell 0.3% to 89.6.
Besides the weakness in the dollar index and positive sentiment over the decline in Covid cases, The rupee is also being supported by actual dollar inflows into IPOs and fund-raising by startups. Traders are advising importers to hedge their positions by booking the dollar at current prices and advising exporters to sell at 73 levels. However, the reduction in manufacturing activity due to ongoing lockdowns across the country has reduced import demand.
According to a report by ICICI Direct Research, the dollar is easing lower against major currencies as worries are diminishing over runaway inflation and the chances of the US Federal Reserve tightening policy sooner have receded.
