Rupee Gains Most in 2 Weeks as U.S. Shutdown Damps Dollar Demand

India’s rupee strengthened the most in two weeks as U.S. lawmakers’ failure to resolve a budget impasse damped demand for the dollar.

The Bloomberg Dollar Index, which tracks the greenback against 10 major counterparts, fell for a fifth day after President Barack Obama said yesterday he was “exasperated” with Republican lawmakers while House Speaker John Boehner said Obama refused to negotiate in a meeting with Congressional leaders. India’s benchmark S&P BSE Sensex (SENSEX) Index of shares climbed 2 percent today as exchange data showed global funds bought a net $2 billion of the nation’s stocks last month.

“The dollar is taking a hit due to the U.S. shutdown and that is helping the exchange rate,” said Naveen Raghuvanshi, a trader at Development Credit Bank Ltd. (DEVB) in Mumbai. “Equities are also positive and this is helping the rupee,” fueling optimism capital inflows will increase, he said.

The rupee advanced 1.2 percent from Oct. 1 to 61.74 per dollar in Mumbai, the biggest gain since Sept. 19, according to prices from local banks compiled by Bloomberg. Against the euro, the rupee rose 0.7 percent today to 83.9958. Financial markets in Mumbai were shut yesterday for a public holiday.

The rupee’s one-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 15 basis points from yesterday to 15.09 percent.

One-month onshore rupee forwards climbed 1.2 percent to 62.29 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts jumped 1.5 percent to 62.32. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

To contact the reporter on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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