By Nimesh Vora
MUMBAI (Reuters) - The Indian rupee rose for the third straight day against the U.S. currency on Wednesday, boosted by the dollar's broad decline and equity inflows.
The rupee last traded at 81.4350 per U.S. dollar, up 0.6% from the 81.92 closing on Monday. Indian markets were shut on Tuesday.
The rupee has in the last three sessions managed to rally 1.7% in the wake of the dollar's pullback against major peers. The dollar index has dropped to near 109.70 from about 113.15 in almost a week.
The dollar's decline to its lowest level in two months has been attributed to the slight improvement in risk sentiment, concerns over the U.S. midterm elections and to unwinding of long positions.
The U.S. rate outlook has likely not contributed to the dollar's fall. Near-maturity Treasury yields are hovering around year-to-date highs, while expectations regarding the U.S. Federal Reserve's December rate hike have been broadly stable.
Meanwhile, foreign equity inflows into Indian shares have turned around. Overseas investors have bought about $2 billion of Indian equities so far this month, after netting barely any inflows in October, according to data from the NSDL.
A few analysts reckon that the rupee's recent recovery is unlikely to sustain, given India's external position.
"We continue to believe that any short-term INR appreciation could be untenable in the medium to long run and presents an opportunity for importers," said Srinivas Puni, managing director at QuantArt Market Solutions.
The rupee's uncertain outlook and volatility are prompting companies to look at more ways to manage hedging costs and risks.
Rupee forward premiums rose Thursday with the 1-year implied yield rising to near 2.35%. Traders cited sell/buy swaps by importers for the rise in premiums.
(Reporting by Nimesh Vora; Editing by Dhanya Ann Thoppil)