India’s rupee rose the most in almost four months as stocks rebounded following a three-day loss and weaker-than-expected U.S. data pushed down the dollar.
The local currency also strengthened on optimism inflows will rise after tax authorities clarified that foreign funds can use double-taxation avoidance treaties to reject demands for a 20 percent tax on past capital gains. The levy has been scrapped in the financial year that began April 1.
The rupee climbed 0.5 percent, the biggest gain since Jan. 9, to close at 63.1450 a dollar in Mumbai, according to prices from local banks compiled by Bloomberg. The benchmark S&P BSE Sensex rose 0.8 percent, the most since April 6.
“The clarity that has come on the tax issue for foreigners is contributing to the positive sentiment,” said Ankur Jhaveri, co-head of currency and rates at Edelweiss Financial Services Ltd. in Mumbai. The weakness in the dollar is also supporting the rupee, he said.
A gauge of dollar strength fell for a fifth day as U.S. data from manufacturing to jobless claims missed forecasts this month, causing speculation the Federal Reserve will delay its first interest-rate increase since 2006. It declined 0.3 percent Tuesday.
The rupee touched 63.7675 on Monday, its lowest level since Dec. 30, following a 1.9 percent retreat last week that was its biggest loss since August 2013.
The Indian currency remains Morgan Stanley’s top pick in Asia and is expected to outperform peers within emerging markets, Kritika Kashyap, a currency analyst in Hong Kong, wrote in a note Tuesday.
Government bonds advanced. The yield on the 8.4 percent government notes due July 2024 fell two basis points, or 0.02 percentage point, to 7.76 percent in Mumbai, according to prices from the Reserve Bank of India’s trading system. It has climbed two basis points this month.