Rupee Halts Two-Day Drop on Speculation Exporters Sold Dollars

India’s rupee rose, snapping two days of losses, on speculation exporters repatriated earnings to take advantage of the currency’s drop to a seven-week low.

The rupee gained 0.2 percent to 60.0187 in Mumbai, according to prices from local banks compiled by Bloomberg. It fell as much as 0.6 percent earlier to 60.5250, the weakest since April 29, after dropping 1.5 percent in the previous two days. A weaker rupee boosts the value of overseas earnings in local-currency terms.

“The rupee reversed the losses as exporters were seen selling dollars,” said Naveen Raghuvanshi, a Mumbai-based currency trader at DCB Bank Ltd. The currency was also buoyed by an increase in local stocks, he said.

The S&P BSE Sensex index of shares rose 1.3 percent today, the most in a week, according to data compiled by Bloomberg.

The rupee fell earlier on concern higher oil prices will worsen the nation’s trade deficit and stoke inflation in a country that imports almost 80 percent of its oil. Brent crude jumped to a nine-month high on June 13 on speculation violence in Iraq will disrupt supplies.

India’s currency and interest rates will withstand the surge in oil prices as the nation’s political stability draws capital, Ashima Goyal, a member of the Reserve Bank of India’s technical advisory committee, which advises Governor Raghuram Rajan on monetary policy, said in a phone interview yesterday. The rupee is unlikely to weaken “much beyond” 60 per dollar, and may trade mostly between 58 and 60 this year, she said.

Weakening Correlation

Foreigners have pumped more than $10 billion into Indian bonds and stocks this quarter, exchange data show, as the most decisive election in 30 years buoyed confidence.

The rupee and Indian stocks have diverged by the most in a year amid efforts by the central bank to restrain the currency even as equities surged to a record following the election, data compiled by Bloomberg show.

The 120-day correlation between the currency and the nation’s benchmark share index fell below 0.36 on June 12 for the first time in a year, and is nearing levels not seen since the collapse of Lehman Brothers Holdings Inc. in September 2008. A reading of 1 would indicate the two assets are in lockstep, while zero would represent no relationship.

One-month implied volatility in the rupee, a gauge of expected moves in the exchange rate used to price options, rose 14 basis points, or 0.14 percentage point, to 8.30 percent, according to data compiled by Bloomberg.

Three-month offshore non-deliverable forwards on the rupee were little changed at 60.96 per dollar, according to data compiled by Bloomberg. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in the U.S. currency.

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