Scripting a turnaround after losing nearly 100 paise in last two days, rupee on Friday bounced back by a massive 79 paise to close at one-week high of 55.15 against the US currency following heavy dollar selling by exporters amid a decline in trade deficit and sustained capital inflows.
The rupee rose notwithstanding weakness in local stocks with Sensex paring 110 points gained in early trade and closing 19 points lower while dollar firmed against euro.
While India's June exports fell for the second straight month in the current fiscal, forex markets cheered the trade deficit dipping to $10.3 billion, the lowest in 15 months.
"Contraction in trade deficit will aid the government to manage its finances in an effective manner enabling it to target the (fiscal) deficit in line with estimates," said Pramit Brahmbhatt, CEO, Alpari Financial Services (India).
Additionally, dollar selling by exporters and some banks helped the rupee firm up, said dealers.
At the Interbank Foreign Exchange (Forex) market, the local unit resumed higher at 55.65 against previous close of 55.94 and immediately touched a low of 55.75 on early rise in shares amid a firm dollar overseas.
However, it rebounded later after the trade deficit data filtered in and touched a high of 55.10 before concluding at 55.15, showing a sharp rise of 0.79 paise or 1.41 per cent.
This was biggest single-day gain since July 3 when it was spurted by 1.05 paise or 1.89 per
Foreign Institutional Investors remained buyers in this month with fund infusion of $1.3 billion till July 12, as per Sebi data.
Today, they bought stocks worth Rs 281.13 crore (Rs 2.81 billion), as per provional data from stock exchanges.
Abhishek Goenka, Founder and CEO, India Forex Advisors, said "The rupee was seen appreciating heavily on account of heavy dollar selling in the local market. The trade deficit declining has also helped the rupee to gain today." The dollar index surrendered its early smart gains, still quoting up by 0.02 per cent against its six major rivals in Europe today.
"The market will be eyeing on the WPI figure which will further decide the course of the RBI monetary policy and rupee as well," said Goenka.
The premium for the forward dollar remained subdued on continued receivings by exporters.
The benchmark six-month forward dollar premium payable in December declined to 161-163 paise from Thursday's close of 164-166 paise.
The premium for far-forward contracts maturing in June also eased to 302-304 paise from 303-305 paise.
The RBI fixed the reference rate for the US dollar at 55.6560 and for euro at 67.8783.
The rupee ended sharply higher against the pound sterling at 85.29 from previous close of 86.34 and remained firm to 67.23 per euro from 68.10 previously.
However, it turned positive to end smartly higher against the Japanese yen to 69.56 per 100 yen from last close of 70.52.
