The rupee rose to a two-week high on Tuesday as expectations for a narrower trade deficit and receding concerns about Syria helped the currency continue its recent recovery from record lows hit last month.
The rupee rose as much as 1.7 percent on the day, and looked set for a fourth consecutive session of gains after former International Monetary Fund Chief Economist Raghuram Rajan took the helm of the central bank last Wednesday and quickly unveiled a spate of measures to support the currency and open up markets.
Hopes that Rajan will unveil more market-friendly measures were further boosted after the Reserve Bank of India late on Friday made it easier for it for non-residents to buy shares of listed companies.
The government is also set to announce more steps over the next few days to curb non-essential imports, with expectations growing for a hike in subsidised diesel prices that would ease concerns about the government's finances.
Still, although the rupee appears to have hit bottom at a record low of 68.85 on August 28, few traders expect a meaningful recovery.
"The delay on any possible action on Syria has helped market sentiment and the rupee was also poised for a correction. However, we are not overtly optimistic. We have a stop-loss at 65 and we will turn dollar buyers at that level," said Abhishek Goenka, chief executive at India Forex Advisors.
The rupee was at 64.44 to the dollar at 0515 GMT versus its Friday close of 65.24/25. It rose to as much as 64.15 in early trade, its highest since August 28.
Indian markets were closed on Monday for a local holiday.
Hopes that the trade deficit narrowed in August were bolstered after India Trade Secretary S. R. Rao said on Monday
the country's merchandise exports had posted double-digit growth, while imports were "contained.
However, Rao did not provide details. The government has not set a date for the release of the official data, but it is expected sometime this week.
The government's steps to curb gold imports has already helped to contain the trade deficit over June and July to a shade over $12 billion, down from a recent monthly average of $17 billion in the earlier six months.
Still, not everybody expects an export bonanza from a weak rupee.
A multitude of stumbling blocks mean that exporters are ill-placed to reap the benefits of the rupee's slide, some analysts said. These hurdles range from erratic taxes throttling special export zones to a cash crunch and clogged ports.
CRUDE PRICES FALL
Improving global investor sentiment also helped the rupee on Tuesday. Russia's proposal to work with Damascus to put Syria's chemical weapons under international control was seen potentially averting planned U.S. military strikes.
Benchmark Brent oil prices fell, extending Monday's slide, a big factor for India since crude oil is its biggest import.
Bond yields also fell sharply, tracking a drop in crude oil prices. The 10-year bond yield was down 20 basis points (bps) at 8.43 percent.
The BSE Sensex rose by more than 2 percent.
Rajan's appointment has sparked badly-needed optimism among investors, after the rupee had slumped over 20 percent so far this year, as markets hope for a fresh approach to the new RBI's controversial defence of the rupee.
A Reuters poll last week showed that the rupee is seen bottoming out to around 66 to the dollar in one month, though it was not expected to regain much ground in the coming year.