Looks to be a busy week for the Rupee, Gold, and The US Dollar
The Indian rupee is expected to appreciate on Monday, helped by rising foreign investment in a bullish stock market, but traders expect the central bank to limit the currency's strength.
* India's main share index hit its eighth record high in 10 sessions on Friday, before ending up 1.2 percent at a record close.
* Foreigners have bought about $2.1 billion of equities in the first nine days of July, taking their total purchases this year to $7.8 billion -- almost equal to total foreign buying of $7.9 billion for all of last year.
* London Brent crude held near 11-month highs on Monday, trading above $77.50 a barrel, which could prompt oil refiners to buy dollars.
* The partially convertible rupee ended at 40.42/43 per dollar on Friday, up from the previous close of 40.50/40.51
The rupee managed to hold on to its current levels against dollar in the interbank market during the week ended on July 14, 2007. In the interbank market, the rupee rose by four paisa against dollar for buying and selling at 60.36 and 60.37, dealers said.
In the open market, the rupee picked up 10 paisa against dollar for buying and selling at 61.00 and 61.08, they said. The rupee, however, lost 89 paisa in relation to euro for buying and selling at Rs 83.49 and Rs 83.59, they added.
Currency analysts said that in the early sessions of the week, the rupee suffered modest losses against dollar in interbank market due to rising demand from the importers. But improved supply of dollars helped the rupee to retain its gains against the US currency, they added. In the open market, the rupee depicted weakness due to buying of dollars from interbank market.
INTERBANK RATES: On July 9 the rupee shed two paisa against dollar for buying and selling at 60.38 and 60.40.
On July 10, the rupee almost held its overnight levels for buying and selling at 60.39 and 60.40.
On July 11, the rupee again maintained its overnight levels in terms of the US currency. On July 12, the rupee picked up one paisa against dollar for buying and selling at 60.38 and 60.39. On July 13, the rupee gained one paisa against dollar for buying and selling at 60.37 and 60.38. On July 14, the rupee again recovered one paisa against dollar for buying and selling at 60.36 and 60.37.
WORLD SCENARIO: In the first session of the week, the euro hit a record high against yen and hovered within striking range of its strongest level versus the dollar as investors continued to flock to the currency on the belief that euro zone interest rates will continue to rise.
During the second session, the low-yielding yen halted its slide against major currencies and the New Zealand dollar weakened as investors pared back some of the bets built up in recent weeks on divergent interest rate expectations.
Surprisingly, weak New Zealand business confidence data and a backup in 10-year Japanese Government bond yields toward the two percent level ahead of the Bank of Japan's (BoJ) rate decision were the main drivers, analysts said.
In the third session, the dollar steadied after tumbling to a record low against the euro and stuck near a 26-year trough against sterling as investors feared that growing US subprime mortgage woes could spread to the wider economy.
In the forth session, the dollar rose against the yen in Asian trading as traders were heartened by Wall Street's recovery overnight, while the Bank of Japan left its key interest rate unchanged, as expected.
In the final session of the week, the euro surged to a record high against the yen in Asian trade on expectations that local interest rates will remain low for some time, encouraging Japanese to send savings overseas, dealers said.
The euro rose to 168.83 yen in Tokyo morning trade, off a high of 168.93 but up from 168.75 in New York late Thursday. In the NY markets, the dollar was flat against the euro, supported by a six-month high in US consumer sentiment, even though an unexpected fall in retail sales last month and troubles in credit markets loomed.
The dollar fell against a basket of six major currencies for the sixth consecutive day, suffering the second-largest weekly decline this year, because of fears the US subprime mortgage crisis could frighten foreign investors away from US credit markets.
OPEN MARKET RATES: On Monday, the rupee lost five paisa against dollar for buying at 61.10 and six paisa for selling at 61.18, dealers said. Against euro, the rupee held on its current levels at Rs 82.60 and Rs 82.70 for buying and selling, they said.
On Tuesday, the rupee picked up 10 paisa against dollar for buying at 61.00 and eight paisa for selling at 61.10, while it gained 15 paisa against euro for buying and selling at Rs 82.45 Rs 82.55, dealers said.
On Wednesday, the rupee gained 10 paisa Vs dollar for buying and selling at 60.90 and 61.00, and versus euro, it lost 59 paisa for buying and selling at Rs 83.06 and Rs 83.16, respectively.
On Thursday, the rupee lost five paisa against dollar for buying and selling at 60.95 and 61.05, and shed 14 paisa in relation to euro for buying and selling at Rs 83.20 and Rs 83.30, dealers said.
On Friday, the rupee shed five paisa against dollar for buying at 61.00 and three paisa for selling at 60.08, and lost 25 paisa against euro for buying and selling at Rs 83.45 and Rs 83.55, they said.
On Saturday, the rupee maintained its overnight levels against dollar for buying and selling at 61.00 and 60.08, respectively, while it shed four paisa against euro for buying and selling at Rs 83.49 and Rs 83.59, respectively, dealers said.
The monetary authorities are in a quandary over fixing an optimum external parity of the rupee in terms of the U.S. dollar and other major currencies that will not hurt the export effort. At the same time they have to prevent a surge in non-oil imports that affects the domestic industry. The central bank has also to effectively check new inflationary pressures.
Though it is recognised that a dearer rupee will slow export growth and create problems for the textiles, leather and leather products, handicrafts, marine products and automobiles components industries and several segments of the services sector, the Reserve Bank of India has not been intervening effectively in the foreign exchange market to stem undue appreciation of the rupee. Even though the dollar has firmed up recently it is feared that the. 40 rupee barrier may even be crossed if forex inflow continues heavy as it did in April-June 2006. The rise in foreign exchange assets in the past year was as much as $44.9 billion against $23.4 billion in the previous year. Judging by the continuing heavy inflow aggregate foreign exchange assets may rise by even $60 billion in a whole year taking the total to over $260 billion.
As aggregate net invisible receipts may rise despite some services getting costlier with a dearer rupee, the RBI foresees a current account deficit of around $10 billion for 2007-08. In 2006-07, the CAD was not much changed at $9.6 billion. This favourable development was due to a net increase in invisible receipts nearly equal to the rise in trade deficit. But for the recent hardening of crude prices and large scale import of wheat, pulses and edible oils at prices higher than internal parity the CAD can be brought down further in 2007-08 to around $5 billion. Against this background, the Indian currency can be expected to harden steadily as net invisible receipts will continue to rise though at a slightly slower pace.
Welcome export reliefs
Much to the relief of exporters, the Finance Ministry has quickly recognised the problems of the affected industries and announced higher drawback facilities, almost across the board, that will benefit them to the extent of Rs. 1,400 crore in a year. Export credit also will be cheaper by two percentage points and banks may be compensated for any loss of income incurred in the process.
But the Ministry’s move will provide only short term benefit. In the meantime, decisions will be needed in making the industries concerned more competitive and fixing the external parity of the rupee against various currencies.
Inflation concerns
The anxiety of the monetary authorities as well as the Government is about a reassertion of inflationary pressures. This is because subsidies on select petro products in 2007-08 are likely to exceed Rs. 60,000 crore. Also, the supply constraints due to inadequate output of wheat, pulses and edible oils will fuel inflation if imports in required quantities cannot be secured even at high prices. If crude prices remain high and supply of essential items not augmented, the inflation rate may move up again to 5 per cent and more.
The situation may get complicated if food and cash crops do not register a significant increase as compared to 2006-07. The monsoon has been satisfactory so far in many regions and the output of foodgrains may be higher than in 2006-07. The deficit in wheat may be overcome while the demand-supply gap in pulses may be narrowed. Oil seeds production however may be hit by excessive rain in Rajasthan, Gujarat, Madhya Pradesh and Karnataka, which are major producers. Larger imports of items in short supply will have to be arranged until the new drive to intensify farm production starts yielding results.
The objective of controlling inflation can be realised even with a slightly cheaper rupee, as the net gain will be tangible if surplus dollars can be mopped in a significant measure.
Expectations in this regard are presumably responsible for the continued buoyancy on the bourses and an impression that there may not be a further rise in interest rates. Lending rates though may be raised in some directions to discourage borrowings by overheated sectors. The banking system has so far been successful in avoiding a squeeze in the money market as deposit growth has been on unprecedented lines and credit expansion can remain vigorous.
With continuing favourable developments in the external sector the authorities have wide options and the growth momentum should not be allowed to slow down in any way.
* India's main share index hit its eighth record high in 10 sessions on Friday, before ending up 1.2 percent at a record close.
* Foreigners have bought about $2.1 billion of equities in the first nine days of July, taking their total purchases this year to $7.8 billion -- almost equal to total foreign buying of $7.9 billion for all of last year.
* London Brent crude held near 11-month highs on Monday, trading above $77.50 a barrel, which could prompt oil refiners to buy dollars.
* The partially convertible rupee ended at 40.42/43 per dollar on Friday, up from the previous close of 40.50/40.51
The rupee managed to hold on to its current levels against dollar in the interbank market during the week ended on July 14, 2007. In the interbank market, the rupee rose by four paisa against dollar for buying and selling at 60.36 and 60.37, dealers said.
In the open market, the rupee picked up 10 paisa against dollar for buying and selling at 61.00 and 61.08, they said. The rupee, however, lost 89 paisa in relation to euro for buying and selling at Rs 83.49 and Rs 83.59, they added.
Currency analysts said that in the early sessions of the week, the rupee suffered modest losses against dollar in interbank market due to rising demand from the importers. But improved supply of dollars helped the rupee to retain its gains against the US currency, they added. In the open market, the rupee depicted weakness due to buying of dollars from interbank market.
INTERBANK RATES: On July 9 the rupee shed two paisa against dollar for buying and selling at 60.38 and 60.40.
On July 10, the rupee almost held its overnight levels for buying and selling at 60.39 and 60.40.
On July 11, the rupee again maintained its overnight levels in terms of the US currency. On July 12, the rupee picked up one paisa against dollar for buying and selling at 60.38 and 60.39. On July 13, the rupee gained one paisa against dollar for buying and selling at 60.37 and 60.38. On July 14, the rupee again recovered one paisa against dollar for buying and selling at 60.36 and 60.37.
WORLD SCENARIO: In the first session of the week, the euro hit a record high against yen and hovered within striking range of its strongest level versus the dollar as investors continued to flock to the currency on the belief that euro zone interest rates will continue to rise.
During the second session, the low-yielding yen halted its slide against major currencies and the New Zealand dollar weakened as investors pared back some of the bets built up in recent weeks on divergent interest rate expectations.
Surprisingly, weak New Zealand business confidence data and a backup in 10-year Japanese Government bond yields toward the two percent level ahead of the Bank of Japan's (BoJ) rate decision were the main drivers, analysts said.
In the third session, the dollar steadied after tumbling to a record low against the euro and stuck near a 26-year trough against sterling as investors feared that growing US subprime mortgage woes could spread to the wider economy.
In the forth session, the dollar rose against the yen in Asian trading as traders were heartened by Wall Street's recovery overnight, while the Bank of Japan left its key interest rate unchanged, as expected.
In the final session of the week, the euro surged to a record high against the yen in Asian trade on expectations that local interest rates will remain low for some time, encouraging Japanese to send savings overseas, dealers said.
The euro rose to 168.83 yen in Tokyo morning trade, off a high of 168.93 but up from 168.75 in New York late Thursday. In the NY markets, the dollar was flat against the euro, supported by a six-month high in US consumer sentiment, even though an unexpected fall in retail sales last month and troubles in credit markets loomed.
The dollar fell against a basket of six major currencies for the sixth consecutive day, suffering the second-largest weekly decline this year, because of fears the US subprime mortgage crisis could frighten foreign investors away from US credit markets.
OPEN MARKET RATES: On Monday, the rupee lost five paisa against dollar for buying at 61.10 and six paisa for selling at 61.18, dealers said. Against euro, the rupee held on its current levels at Rs 82.60 and Rs 82.70 for buying and selling, they said.
On Tuesday, the rupee picked up 10 paisa against dollar for buying at 61.00 and eight paisa for selling at 61.10, while it gained 15 paisa against euro for buying and selling at Rs 82.45 Rs 82.55, dealers said.
On Wednesday, the rupee gained 10 paisa Vs dollar for buying and selling at 60.90 and 61.00, and versus euro, it lost 59 paisa for buying and selling at Rs 83.06 and Rs 83.16, respectively.
On Thursday, the rupee lost five paisa against dollar for buying and selling at 60.95 and 61.05, and shed 14 paisa in relation to euro for buying and selling at Rs 83.20 and Rs 83.30, dealers said.
On Friday, the rupee shed five paisa against dollar for buying at 61.00 and three paisa for selling at 60.08, and lost 25 paisa against euro for buying and selling at Rs 83.45 and Rs 83.55, they said.
On Saturday, the rupee maintained its overnight levels against dollar for buying and selling at 61.00 and 60.08, respectively, while it shed four paisa against euro for buying and selling at Rs 83.49 and Rs 83.59, respectively, dealers said.
The monetary authorities are in a quandary over fixing an optimum external parity of the rupee in terms of the U.S. dollar and other major currencies that will not hurt the export effort. At the same time they have to prevent a surge in non-oil imports that affects the domestic industry. The central bank has also to effectively check new inflationary pressures.
Though it is recognised that a dearer rupee will slow export growth and create problems for the textiles, leather and leather products, handicrafts, marine products and automobiles components industries and several segments of the services sector, the Reserve Bank of India has not been intervening effectively in the foreign exchange market to stem undue appreciation of the rupee. Even though the dollar has firmed up recently it is feared that the. 40 rupee barrier may even be crossed if forex inflow continues heavy as it did in April-June 2006. The rise in foreign exchange assets in the past year was as much as $44.9 billion against $23.4 billion in the previous year. Judging by the continuing heavy inflow aggregate foreign exchange assets may rise by even $60 billion in a whole year taking the total to over $260 billion.
As aggregate net invisible receipts may rise despite some services getting costlier with a dearer rupee, the RBI foresees a current account deficit of around $10 billion for 2007-08. In 2006-07, the CAD was not much changed at $9.6 billion. This favourable development was due to a net increase in invisible receipts nearly equal to the rise in trade deficit. But for the recent hardening of crude prices and large scale import of wheat, pulses and edible oils at prices higher than internal parity the CAD can be brought down further in 2007-08 to around $5 billion. Against this background, the Indian currency can be expected to harden steadily as net invisible receipts will continue to rise though at a slightly slower pace.
Welcome export reliefs
Much to the relief of exporters, the Finance Ministry has quickly recognised the problems of the affected industries and announced higher drawback facilities, almost across the board, that will benefit them to the extent of Rs. 1,400 crore in a year. Export credit also will be cheaper by two percentage points and banks may be compensated for any loss of income incurred in the process.
But the Ministry’s move will provide only short term benefit. In the meantime, decisions will be needed in making the industries concerned more competitive and fixing the external parity of the rupee against various currencies.
Inflation concerns
The anxiety of the monetary authorities as well as the Government is about a reassertion of inflationary pressures. This is because subsidies on select petro products in 2007-08 are likely to exceed Rs. 60,000 crore. Also, the supply constraints due to inadequate output of wheat, pulses and edible oils will fuel inflation if imports in required quantities cannot be secured even at high prices. If crude prices remain high and supply of essential items not augmented, the inflation rate may move up again to 5 per cent and more.
The situation may get complicated if food and cash crops do not register a significant increase as compared to 2006-07. The monsoon has been satisfactory so far in many regions and the output of foodgrains may be higher than in 2006-07. The deficit in wheat may be overcome while the demand-supply gap in pulses may be narrowed. Oil seeds production however may be hit by excessive rain in Rajasthan, Gujarat, Madhya Pradesh and Karnataka, which are major producers. Larger imports of items in short supply will have to be arranged until the new drive to intensify farm production starts yielding results.
The objective of controlling inflation can be realised even with a slightly cheaper rupee, as the net gain will be tangible if surplus dollars can be mopped in a significant measure.
Expectations in this regard are presumably responsible for the continued buoyancy on the bourses and an impression that there may not be a further rise in interest rates. Lending rates though may be raised in some directions to discourage borrowings by overheated sectors. The banking system has so far been successful in avoiding a squeeze in the money market as deposit growth has been on unprecedented lines and credit expansion can remain vigorous.
With continuing favourable developments in the external sector the authorities have wide options and the growth momentum should not be allowed to slow down in any way.
Labels: currency, dollar, exhange rate, forex, indian rupee, jewelery, rupee, united states, us
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