Rupee Posts Weekly Gain as Current-Account Gap Seen Shrinking

India’s rupee completed a weekly gain after better-than-forecast current-account data boosted optimism that the annual gap will narrow from a record.

The shortfall in the broadest measure of trade was $21.8 billion in April through June, compared with the median prediction in a Bloomberg survey for a $23 billion deficit. The gap will narrow to about $59 billion in the year through March 2014 from an unprecedented $87.8 billion the prior period, Morgan Stanley predicts. The dollar has depreciated as a partial U.S. government shutdown enters its fourth day amid wrangling over the budget and increasing the nation’s debt limit.

“Expectations of improvement in the current account and funding are materially important for the rupee,” analysts at Morgan Stanley, including Hong Kong-based Geoffrey Kendrick, wrote in a research report yesterday. “We are tactically constructive on the rupee.”

The rupee advanced 1.7 percent this week to 61.44 per dollar in Mumbai, the best performance among emerging-market Asian currencies, according to prices from local banks compiled by Bloomberg. It rose 0.5 percent today. The Bloomberg Dollar Index, which tracks the greenback against 10 major counterparts, fell 0.4 percent since Sept. 27.

The U.S. political impasse may compel the Federal Reserve to prolong its stimulus, according to BNP Paribas SA. Fed Chairman Ben S. Bernanke unexpectedly decided on Sept. 18 to keep buying $85 billion of bonds each month.

The rupee’s one-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 32 basis points this week, or 0.32 percentage point, to 14.94 percent.

One-month onshore rupee forwards climbed 0.4 percent today to 62.07 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts jumped 0.5 percent to 62.02. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

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