MUMBAI: The currency tide has turned in spectacular fashion. Asia’s worst performer until last week, the rupee has become the world’s best performer in the past five days as investor confidence has surged following a series of steps to boost inflows and the receding likelihood of a US strike on Syria.The local currency had its best four-day rally in four decades after Reserve Bank of India Governor Raghuram Rajan moved to reverse sentiment on policymaking, introducing several measures soon after taking over last Wednesday. Liberal fund-raising rules for banks and exchange risk cover for NRI deposits are estimated to draw about $20 billion in the next few weeks.The rupee’s slump below 60 to the dollar was a “capitulation trade which clearly was overdone”, according to Alok Agarwal, CFO at Reliance Industries. “The rupee’s reversal should take the same path — a move up to 63 against the dollar, with relief and confidence coming back and then a slower appreciation to 60 as the emerging markets steady themselves after the Fed’s plans on tapering are known at next week’s Federal Open Market Committee meeting.”The rupee gained 2.2 per cent from Friday’s level to 63.84 to the dollar. It’s the best performer in the past five days among the 189 currencies listed on the Bloomberg table. The rupee strengthened past 64 for the first time since August 26 to as high as 63.76, Bloomberg data shows. The currency touched an all-time low of 68.84 on August 28.“Rupee will touch 60,” said Harihar Krishnamoorthy, head of treasury at FirstRand Bank. “People are digesting measures taken by both the government and the Reserve Bank of India and they are seen in a very positive light. Reducing geopolitical risks will boost sentiment and cool oil prices.”Fears of a US strike on Syria faded after Russia offered to ensure that chemical weapons would not be used, helping to push oil prices lower. Global stocks surged and currencies gained.RBI meanwhile allowed a special swap window for FCNR(B) deposits to narrow the current account deficit, a measure of the difference between overseas spending and earnings. RBI will swap the fresh FCNR(B) dollar funds with a three-year tenor at a fixed rate of 3.5 per cent per annum.“Everyone knows that 65 is way weaker than the rupee needs to be from a competitiveness standpoint,” said Jamal Mecklai, chief executive at Mecklai Financial. “Even if India (and the global markets) are hit by another wave of tapering or whatever, I would bet that the ideal rupee will recover into a range of 58 to 64 over the next six months.”The Federal Open Market Committee meeting next week will indicate what Fed Chairman Ben Bernanke plans to do with the quantitative easing programme, which has become the lifeblood of emerging markets in the past few years.India’s economic fundamentals may also improve as exports become competitive after a 20 per cent depreciation of the currency, and tilts trade in its favour. The trade deficit for August narrowed to $10.9 billion from $12.26 billion in July, it was announced on Tuesday. The deficit narrowed on lower gold imports, which fell to $0.65 billion from $2.2 billion in May.Furthermore, RBI’s decision to sell dollars to oil companies directly has reduced the monthly current account deficit in the market to just about $1 billion. Oil companies are estimated to contribute about $9 billion to the total $10 billion deficit every month. “With the improvement in the current account deficit, the rupee may appreciate to touch 60 to the US dollar,” said Ashutosh Khajuria, president (treasury), Federal Bank. “People would like to wait till the September 20 policy to watch when the new mood will build up.”Governor Rajan will announce his first monetary policy on September 20. Even if the US Fed reduces its $85-billion-a-month of bond purchases, the impact on the rupee may be minimal, according to experts.Global funds have sold Indian debt worth $10.2 billion since May 22 when the Fed first signaled tapering. Overseas investors now own about $7 billion of Indian government bonds and even if they pull out, the short-term money is just about $2 billion, while the remaining $5 billion is long-term.Even equities have begun to attract overseas funds. Foreigners have bought stocks worth nearly Rs 5,000 crore in the past three days. Some have been unnerved by the sharp fluctuation in the currency, with the sudden upswing in the currency leaving them wondering how to hedge exposure.Raja Shanmugam, a partner at Tirupur-based textile exporter Warsaw International, is “confused” about the direction of the rupee. Most textile exporters booked forward contracts and pre-booked orders at 69-70 to the dollar, he said. “Now buyers have a preconceived mindset of negotiating at Rs 69-70. Our comfort level with the rupee would be at Rs 50-55. Most of us are now moving towards natural hedging instead of forward contracts where we need to worry about volatility.”