Indian Rupee Rebounds From Two-Month Low on U.S. Budget Optimism

India’s rupee rebounded from a two-month low after U.S. President Barack Obama expressed confidence that he and Congress would reach an agreement over the government’s budget.

Obama began a new round of deficit-reduction talks with top Republicans and Democrats in a bid to avoid automatic tax increases and spending cuts, the so-called fiscal cliff, that threaten to push the country into a recession next year. The rupee’s gains may be limited as crude oil prices rose, according to Alpari Financial Services India Ltd., after Israel said it may expand an assault on the Gaza Strip. India imports more than 80 percent of its oil requirements.

The rupee advanced 0.2 percent to 55.0650 per dollar in Mumbai, according to data compiled by Bloomberg. The currency touched 55.1950 on Nov. 16, the weakest level since Sept. 13, when the government embarked on a slew of policy changes to improve public finances and attract investment. One-month implied volatility in the rupee, a measure of exchange-rate swings used to price options, fell 10 basis points, or 0.10 percentage point, to 9.90 percent.

“The constructive talks on the fiscal cliff in the U.S. have triggered risk-on sentiment,” Pramit Brahmbhatt, Mumbai-based chief executive officer at Alpari Financial Services India, wrote in an e-mail today. “The softer Dollar Index shall aid modest gains in the rupee.”

The Dollar Index, which tracks the greenback against six major trading partners, fell 0.3 percent. Brent crude, the price benchmark for India, rose 0.7 percent to $109.71 per barrel.

European finance ministers aim to craft a plan for Greece’s next aid payment this week. Regional finance chiefs are due to meet in Brussels tomorrow for the second time in a week after they agreed seven days ago to keep Greece’s bailout aid flowing.

Three-month onshore rupee forwards were at 55.94 per dollar, compared with 56.00 on Nov. 16, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.93 versus 56.02. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.