Dolars to Rupee ...The Headlines continue...send money back to India
With each piece of research we aquire, we find an investment in the Rupee to look better and better. Both the FOREX markets and sending dollars back to India both seem to be the right move.
Some capital inflows are expected to hit the market this week, too, and this is expected to strengthen the rupee. The biggest downside risk stems from a correction in the equity market. The rupee-dollar rate is likely to trade in a 44.55 - 44.90 band.
The focus in the currency markets shifted to Thailand last week where capital controls imposed by the Bank of Thailand (BOT) wreak havoc in the Thai equity market and pulled down the Thai Baht by 3.3% over the week.
To slow the pace of capital inflows and combat baht strength, the BOT imposed a “lockbox” capital control on foreigners’ deposits. This rule requires 30% of deposits to be set aside in a “lockbox” reserve and only released after the deposit has been in Thailand for one year.
Thailand’s finance minister Pridiyathorn Devakula called the decision an “historic” effort to counter speculation. However, by Tuesday, the Thai authorities were backtracking after Bangkok’s stock market suffered its largest one-day fall since the Asian financial crisis of 1997.
The outlook for monetary policy drove price action among the major currency pairs amidst thin year-end trading volumes. The euro outperformed other majors as robust economic data, along with statements from European Central Bank (ECB) president Jean-Claude Trichet made it clear that euro zone would see further monetary tightening in 2007. In contrast, the monetary policy outlook in the US and Japan remained uncertain.
Other Asian markets also felt the heat as fears of a contagion led to withdrawal by foreign investors. As a result, most Asian currencies came under selling pressure.
The BOT quickly moved to exempt inflows of equity investment from these capital controls. On Thursday, it announced similar plans for funds for property purchases.
The euro advanced after the IFO survey of German business confidence hit its highest level since 1990, heightening expectations that the ECB would hike interest rates in 2007. Those expectations were given a further boost as Trichet warned of inflationary pressures building up in an address to the European Parliament.
The yen came under pressure as the Bank of Japan (BOJ) kept its policy rate unchanged at 0.25%. This decision was largely expected, but BOJ governor Fukui’s dovish tone, in his post monetary policy meeting statement, took market participants by surprise. He pointed out that weak consumption and consumer price inflation situation requires a closer look in January. This reduced the chances of a rate hike in January.
The yen weakened across the board on fresh appetite for the carry trades, where long positions in higher-yielding currencies are funded by borrowing in yen. The yen dropped to a one-year low against the New Zealand dollar and a nine-year trough against the Australian dollar.
Against pound sterling, the Japanese currency hit its lowest level since September 1998.
The US dollar closed the week lower against the European majors but gained against the yen. Economic data releases in the US were broadly negative for the greenback. The US current account deficit ballooned to 6.8% of the GDP in the third quarter, bringing to the forefront the weak external fundamentals of the US economy.
The data also revealed additional signs of deterioration in the manufacturing sector, as the Philadelphia Fed survey sharply missed forecasts, dropping by 4.3, its lowest reading in over three years. A three-year high producer price inflation and a slight bounce in the US housing stats did not help the greenback much.
In the local inter-bank market, the rupee gained by 0.3% and traded in a range of 44.55-44.88 versus the US dollar last week. After the initial weakness following the Thai capital control measures and some dollar buying related to the offshore-onshore market arbitrage, the rupee recovered to gain value against the greenback.
Large dollar sales by a software companies and inflows from some external commercial borrowings (ECBs) helped push the rupee up. And with liquidity shortage still persisting in the banking system, banks, in order to generate rupee liquidity, continued to sell dollars in the spot market and buy them back in near tenor forwards.
Oil importers were present on the demand side to curtail rupee’s gains. Some RBI intervention was also seen on Friday.
Local data releases last week were also broadly supportive for the rupee. November trade data showed that the merchandise trade deficit continued to widen as exports growth lagged behind that for imports for the third consecutive month.
More importantly, the capital inflow position this year is also looking much better. Foreign direct investment (FDI) registered a 134.6% increase in March-October 2006 to touch $6.3 billion as compared to $2.6 billion in the same period last year. Capital inflows from stable sources like FDI and long-term ECBs have helped in funding the trade deficit comfortably this year.
Some capital inflows are expected to hit the market this week, too, and this is expected to strengthen the rupee. The biggest downside risk stems from a correction in the equity market. The rupee-dollar rate is likely to trade in a 44.55 - 44.90 band.
The focus in the currency markets shifted to Thailand last week where capital controls imposed by the Bank of Thailand (BOT) wreak havoc in the Thai equity market and pulled down the Thai Baht by 3.3% over the week.
To slow the pace of capital inflows and combat baht strength, the BOT imposed a “lockbox” capital control on foreigners’ deposits. This rule requires 30% of deposits to be set aside in a “lockbox” reserve and only released after the deposit has been in Thailand for one year.
Thailand’s finance minister Pridiyathorn Devakula called the decision an “historic” effort to counter speculation. However, by Tuesday, the Thai authorities were backtracking after Bangkok’s stock market suffered its largest one-day fall since the Asian financial crisis of 1997.
The outlook for monetary policy drove price action among the major currency pairs amidst thin year-end trading volumes. The euro outperformed other majors as robust economic data, along with statements from European Central Bank (ECB) president Jean-Claude Trichet made it clear that euro zone would see further monetary tightening in 2007. In contrast, the monetary policy outlook in the US and Japan remained uncertain.
Other Asian markets also felt the heat as fears of a contagion led to withdrawal by foreign investors. As a result, most Asian currencies came under selling pressure.
The BOT quickly moved to exempt inflows of equity investment from these capital controls. On Thursday, it announced similar plans for funds for property purchases.
The euro advanced after the IFO survey of German business confidence hit its highest level since 1990, heightening expectations that the ECB would hike interest rates in 2007. Those expectations were given a further boost as Trichet warned of inflationary pressures building up in an address to the European Parliament.
The yen came under pressure as the Bank of Japan (BOJ) kept its policy rate unchanged at 0.25%. This decision was largely expected, but BOJ governor Fukui’s dovish tone, in his post monetary policy meeting statement, took market participants by surprise. He pointed out that weak consumption and consumer price inflation situation requires a closer look in January. This reduced the chances of a rate hike in January.
The yen weakened across the board on fresh appetite for the carry trades, where long positions in higher-yielding currencies are funded by borrowing in yen. The yen dropped to a one-year low against the New Zealand dollar and a nine-year trough against the Australian dollar.
Against pound sterling, the Japanese currency hit its lowest level since September 1998.
The US dollar closed the week lower against the European majors but gained against the yen. Economic data releases in the US were broadly negative for the greenback. The US current account deficit ballooned to 6.8% of the GDP in the third quarter, bringing to the forefront the weak external fundamentals of the US economy.
The data also revealed additional signs of deterioration in the manufacturing sector, as the Philadelphia Fed survey sharply missed forecasts, dropping by 4.3, its lowest reading in over three years. A three-year high producer price inflation and a slight bounce in the US housing stats did not help the greenback much.
In the local inter-bank market, the rupee gained by 0.3% and traded in a range of 44.55-44.88 versus the US dollar last week. After the initial weakness following the Thai capital control measures and some dollar buying related to the offshore-onshore market arbitrage, the rupee recovered to gain value against the greenback.
Large dollar sales by a software companies and inflows from some external commercial borrowings (ECBs) helped push the rupee up. And with liquidity shortage still persisting in the banking system, banks, in order to generate rupee liquidity, continued to sell dollars in the spot market and buy them back in near tenor forwards.
Oil importers were present on the demand side to curtail rupee’s gains. Some RBI intervention was also seen on Friday.
Local data releases last week were also broadly supportive for the rupee. November trade data showed that the merchandise trade deficit continued to widen as exports growth lagged behind that for imports for the third consecutive month.
More importantly, the capital inflow position this year is also looking much better. Foreign direct investment (FDI) registered a 134.6% increase in March-October 2006 to touch $6.3 billion as compared to $2.6 billion in the same period last year. Capital inflows from stable sources like FDI and long-term ECBs have helped in funding the trade deficit comfortably this year.
posted by Howard at
10:26 AM
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