Rupee declines....but strength expected to continue on weak US Dollar

Trading of currencies on the world wide Forex markets continue to be the best way to hedge cost of living increases in both India and China.

India's Rupee Declines on Speculation Importers Sold Currency

By Anoop Agrawal

July 24 (Bloomberg) -- India's rupee fell, reversing earlier gains, on speculation importers took advantage of the currency's biggest advance in more than a decade to buy dollars needed for crude oil imports.

The currency dropped from the highest in more than two months as refiners increased dollar purchases to benefit from a drop in crude oil prices. The commodity dropped more than 15 percent from an all-time high of $147.27 a barrel reached on July 11. A stronger rupee will reduce costs for Indian refiners, who meet three-quarters of their annual oil needs from imports.

``Oil is still not in what we may call a comfort zone, so refiners are taking advantage of the little opportunity they get,'' said Vikas Babu, a currency trader at state-owned Andhra Bank in Mumbai. ``The rupee may still be under pressure.''

The rupee weakened 0.1 percent to 42.1250 per dollar at the 5 p.m. close in Mumbai, after earlier climbing as much as 0.6 percent, according to data compiled by Bloomberg. Yesterday's 1.5 percent advance was the biggest since January 1998.

A 30 percent rally in oil prices this year boosted India's average crude imports to $7.8 billion a month from $5.5 billion in 2007, Bloomberg data show.

The rupee rose earlier on speculation exporters purchased the currency and sold dollars to guard against an erosion of earnings should the rupee rise further. The recent slump in oil prices also spurred optimism inflation will ease.

``The rupee will accelerate gains, helped by exporters' dollar sales and the fall in oil,'' said V. Kumar, chief currency trader at State Bank of Travancore in Mumbai. ``Fundamentals are driving the rally.''

Risk-Reward

The central bank will support the rupee and increase interest rates twice more this year to combat inflation, according to Standard Chartered Plc.

``We believe the risk-reward balance has changed for the rupee as tight monetary policy could mitigate rupee weakness for now,'' the U.K. bank's Singapore-based strategist Thomas Harr said, confirming the contents of a research report he helped write yesterday. ``Most negatives for the rupee are currently in the price.''

Asset managers should turn ``neutral'' on the rupee from ``underweight'' as authorities ``have finally woken up'' to the inflation threat and are starting to raise rates to ``more appropriate levels,'' Harr wrote.

Raising Rates

The Reserve Bank of India may increase its benchmark repurchase rate, or its overnight lending rate, twice by 50 basis points each time to 9.5 percent in 2008, Standard Chartered's analysts said in the report. A basis point is 0.01 percentage point.

The central bank may also raise the reverse-repurchase rate, or the rate at which it drains money from the banking system overnight, twice by a similar amount to 7 percent.

India's inflation rate has tripled this year as crude oil advanced 69 percent in the past 12 months. Wholesale prices climbed 12.03 percent in the week ended July 12, the fastest since February 1995, economists said before a government report today.

Reserve Bank Governor Yaga Venugopal Reddy increased the policy rate twice in June after keeping it unchanged for almost 15 months. He last raised it on June 24 by the most since 2000 to 8.5 percent.

Rupee Forex trading / US Dollar / Forex Currency News, Gold prices India, and The Sensex index on the Bombay Stock Exchange (BSE). Euro / Rupee and Yen / Rupee. Silver Quotes

Indian Rupee, Oil, Gold and other currencies with real value

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The Indian rupee advanced to a 10-day high against the US dollar during early Asian deals on Friday. By about 9:10 pm ET, the rupee fetched 42.77 against the buck, compared to Thursday's New York session close of 42.86. In economic news, India will announce inflation report for the week ended June 28. For the week ended June 21, the inflation rate was 11.63 %
Shares on Karachi Stock Exchange ran into deeper recession last week as both leading investors and institutional traders remained on the sidelines and did not cover positions even at the attractively lower levels.

The KSE 100-share index maintained its creeping decline and fell by another 265.84 points at 11,695.82 as compared to 11,961 points a week earlier. All leading share, notably MCB, OGDCL, National Bank, PSO, Pakistan Oilfields and Pakistan Petroleum again ended in the minus column amid persistent price erosions.

It was not a single factor but a combination of them, which the market hostage, notable among them was weakness of the rupee, which fell to an all-time low of Rs73 to a US dollar and massive outflow of the capital from the share market to other outlets including gold, which also hit a new high at Rs21,300 per 10 gramme.

Political uncertainty, bad news from FATA and concerns about the economy followed by lack of investor interest in the share business also kept the market under pressure throughout the week.

"The failure of the market stabilisation corrective steps taken last month to put the market back on the rails or to revive investor interest in the share business seems to have further accentuated the situation," analysts said.

It was in this background that a concept of Equity Market Opportunity Fund worth Rs50 billion floated by the Security & Exchange Commission of Pakistan (SECP) to arrest the persistent downward drift on the market and protect the investor interest in case market is manipulated by some speculative traders.

A high-power meeting of all those associated with the share business was held during the last week and financial institutions have sought time to participate in the proposed fund and a final meeting is due to be held on July 16 to finalise the details and the amount to be offered by the participants, market sources said.

The next week, there could be very crucial for the market trend as all steps taken so far including lower and upper circuit breakers failed to produce the desired impact on the market, they added.

Some analysts said what ails the market is the prevailing uncertainty on the political front and until normalcy returns to it not many, not to speak of the foreign investors who are already out, would like to put money in the share business as low daily volume indicates.

Trading, therefore, resumed on an easy note as investors were in no mood to cover positions even at the current attractively lower levels owing partly to the continued weakness of the rupee and an uncertain political outlook.

However, mid-week corrective steps taken by the State Bank of Pakistan to arrest fresh fall in the value of the rupee against the US dollar were welcomed by the stakeholders in the share market as was reflected by revival of selective support at the lower levels on some of the counters.

The improvement both in values and the turnover was attributed the SECP-KSE meeting to review the last months measures and their impact on stock trading and if possible to revise some of them, market sources said.

On the open market, the rupee at one stage hit a new low at 73 and 73.50 for buying and selling respectively as investors seeking safe havens continued to build-up long positions in the dollar, analyst Hasnain Asghar Ali said.

Investors are awaiting the proposed meeting of the KSE on July 16 to review the current changes in upper and lower circuit breakers amid hopes that the previous lower lock of five per cent may be restored to push the turnover figure from the current lows, he added. "Why should investors put money in stocks amid a phenomenon of depreciating value of the rupee, they have other safe havens where their investment is safe and could appreciate," he added.

But analyst Ahsan Mehanti said the increase in the turnover figure at 52 million shares after several lean sessions and an all-time fall in volume figure to 5.348 million shares reflects that a section of investors has already resumed covering purchases on selected counters.

Indications are that the current short-covering at lows could develop into a strong rally any day as the sell-off seems to have overdone its intensity on technical grounds, he said.

Everyone is talking about petrol and the rising crude prices and how difficult it is for the Indian government to do anything. Across the world, it is said that the oil producing nations are unfair by manipulating the supply and demand situation leading to unfair prices.

The fact is all trends related to oil prices have been on the rise. The consumption has been on the rise and the dollar, in which is the oil is priced has been weak for long. With rising consumption and a weak dollar, the price trends were clear. IMF predicts that oil prices are set to remain high and will be a drag on the global economy. The head of a fund management company in the US has gone to the extent of saying that this is the worst financial crisis since the Great Depression. The Goldman Sachs predicts the crude prices to touch $200 a barrel in the next six to 24 months. We are already close to $150. It's no use getting into the blame game and accuse OPEC for not doing enough to keep the prices at a reasonable level. With failure to control consumption as well as not adequately tapping alternate sources of energy, we are caught napping. Indians are now going to pay dearly for successive governments not having a clear long term strategy on oil.

Our nation is one of the worst examples for extremely poor infrastructure related to urban mass transport. The fact is in every city, citizens have to have own private transport, if they have to work or even go to school. This is one of the main reasons for consumption rising steadily, which jumped up 11 per cent last year.
Shortage of power also contributes to consumption of diesel for power generation. In other words, failure of our government to provide adequate mass urban transport and power, has led to increases in consumption of petrol and diesel. Apart from this, we also haven't done enough to tap alternate sources of energy. There are other problems plagued with Indian governance.

Too expensive

Look at the petrol prices across the world, for instance ,to see how our pricing is right at the top. Petrol in India is at $1.32 or Rs 57 per litre which is one of the highest in the world. In China, the price is about $1.01 or Rs 42.7 per litre, after last weeks increase in prices. In Pakistan, petrol is considerably cheaper at $1.06 or Rs 44 per litre. In Dubai, where I live, petrol is $0.37 or Rs 15.50, same as bottled mineral water and Pepsi! However, the cheapest petrol is in Venezuela at $0.05 per litre or Rs 2.10 per litre. One of the major reasons for higher prices in India is tax: customs & excise duties, and other taxes, including state taxes, accounting for half of the selling price. In other words, the ex-refinery price of petrol is actually about Rs 25 per litre and the rest is swallowed by our Government. Depreciation in the value of Rupee against Dollar is also pushing up our oil prices.
Clearly, we need to correct past blunders by taking urgent short term as well as long term measures. We need to control consumption by providing citizens with reliable and comfortable modes of public transport. Private sector should be encouraged to provide transport to employees.

Our congested roads also lead to low fuel efficiencies of automobiles. The long pending Iran-Pakistan-India natural gas project has to be implemented soon as also seriously exploring alternate sources of energy. Lastly, there is no justification for such high dosage of duties and levies on petrol, diesel and LPG. In other words, it's predominantly our government which is at fault for not being proactive about such a serious issue. Hence, it would be wrong to blame the oil producing economies, or the Indian consumers for the present crisis. We can still tide over the crisis, if the government acts by taking the necessary short term as well as long term measures. The oil bomb is ticking and threatens to crash the Indian economy.
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Rupee / Dollar Exchange and Gold price update

Indian rupee regained its upper hand to dollar by 12 paise to 42.78 against the greenback mainly on heavy dollar selling by exporters on Friday.

The rupee-resumed firm at 42.82/83 a dollar from its overnight closes of 42.90/91 a dollar and later improved to 42.78/79 a dollar in late morning deals.

Rupee drew support from reports the central bank may consider increasing the Cash Reserve Ratio or short-term interest rate to contain the rising inflation.

The Rupee Dollar - a technical perspective

After remaining below Rs. 40 levels for about six months (from Sept 07 to Feb 08), the Dollar/ Rupee rate touched Rs 40.70 and has since retraced 61.80% of its move ( 61.80% is a Fibonacci retracement level)

Also after it took support at Rs 39 thrice during the period Sept 07 to Feb 08 , the technical pattern visible was of a 'rounding bottom'- which is a reversal pattern. In this case it reverses the down trend in the Dollar against the rupee.

The current technical structure is in favor of the dollar rising further against the rupee ( i.e. rupee depreciating further).

My technical target over a period of the next few months would be Rs 41.60-41.90 per dollar.

The current price of dollar is Rs 40.02 and I expect the up move to restart once it breaks the resistance level of Rs 40.15 in coming days. Sensex stock index.

Probably those of you investing in stocks can take a cue from this and dig out stocks which can benefit from a depreciation in the Rupee!!

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The rupee failed to hold its overnight level in relation to dollar on the interbank market on Tuesday, losing 35 paisa for buying and selling at 67.25 and 67.35, currency experts said. The rupee resisted sharp decline versus the dollar due to smooth supply of the US currency.

Besides, it is expected that the rupee may lose more ground following persistent uncertainties on the political and economic sectors, they added. In the second session, the yen rose after a report that US investment bank Lehman Brothers may raise new capital, stoking worries about more fallout from the global credit crisis and prompting investors to avoid risky currency bets. The Wall Street Journal reported on Tuesday that US investment bank Lehman Brothers may raise $3 billion to $4 billion in new capital, suggesting the firm could post its first quarterly loss since going public.

OPEN MARKET RATES: The rupee gave up its firmness in relation to dollar, falling 40 paisa for buying and selling at 67.80 and 67.90, they said. The rupee also continued its weakness versus to euro, losing 69 paisas for buying and selling at 105.20 and 105.30, they said.

GOLD sores higher and as predicticted - The Indian Rupee to trade freely in Forex Markets

It’s not just the stock markets which are are giving jitters to people this festival season. On Friday, after 17 months, gold prices reached Rs 10,000 per 10 grams in early trade, before closing at Rs 9,915.

India might soon launch currency futures that would enable corporates, mutual funds and individuals to trade in currency derivatives. The apex Reserve Bank of India (RBI) has set up an expert working group for examining issues related to the launch of currency futures in the country.

The moves comes close of the heels of the launch of Indian Rupee futures by the Dubai Gold and Commodities Exchange (DGCX) earlier this month. DGCX, the first exchange in the world to trade a rupee derivative, already trades in three currency contracts such as euro/US dollar, pound sterling/US dollar and Japanese yen/US dollar.

Each DGCX Indian rupee contract represents two million Rupees. Prices will be quoted in US Cents per 100 Indian Rupees, with a minimum price fluctuation of 0.000001 US Dollars per Rupee ($2 per contract). At any point in time DGCX will list the current and next two calendar months, plus the next three calendar quarterly months.

As per the RBI move, the currency futures will enable individuals and companies to have the opportunity to hedge and trade their Indian rupee risk on transparent and equal basis that an exchange provides.

Individuals planning to spend large sums of foreign exchange on overseas travel or education will also be able to hedge against currency fluctuation risks.


A currency future is similar to a forward contract. It is a futures contract to exchange one currency for another at a specified date in the future at a price (exchange rate) that is fixed on the last trading date.

Typically, one of the currencies is the US dollar. The price of a future is then in terms of US dollars per unit of other currency. This can be different from the standard way of quoting in the spot foreign exchange markets. The trade unit of each contract is then a certain amount of other currency, for instance €125,000.

Most contracts have physical delivery, so for those held at the end of the last trading day, actual payments are made in each currency. However, most contracts are closed out before that.

Investors use these futures contracts to hedge against foreign exchange risk. They can also be used to speculate and, by incurring a risk, attempt to profit from rising or falling exchange rates. Investors can close out the contract at any time prior to the contract's delivery date.

Currency futures were first created at the Chicago Mercantile Exchange (CME) in 1972, less than one year after the system of fixed exchange rates was abandoned along with the gold standard. Some commodity traders at the CME did not have access to the inter-bank exchange markets in the early 1970s, when they believed that significant changes were about to take place in the currency market.

They established the International Monetary Market (IMM) and launched trading in seven currency futures on May 16, 1972.

Today, the IMM is a division of CME. In the second quarter of 2005, an average of 332,000 contracts with a notional value of $43 billion were traded every day. Currently most of these are traded electronically.

But the drop to four digits could be momentary. Dealers and bullion merchants said the price will rise as the dollar was expected to weaken against most currencies. For jewellery buyers, there was no reprieve from five-digit prices as jewellers are known to add a healthy margin in the form of "making charges".

On Friday, gold prices, in dollar terms, shot up to $770 per ounce (or 31.1 gram) in the international market.
On May 12, 2006, gold had touched its highest level of Rs 10,500 per 10 grams. In dollar terms, the metal’s price was $725 per ounce. During the last fortnight, though gold was quoting around $750 per ounce, in rupee terms, it hovered around Rs 9,500 per 10 grams due to the appreciation of the rupee against the dollar.
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On Friday, silver also appreciated to Rs 18,570 per kilo from the previous close of Rs 18,435 per kilo.

Officials said RBI has asked foreign banks operating in India to make presentations, highlighting the feasibility of currency futures and how it can help corporates and mutual funds in the country.

Once a decision is taken, the RBI will make a recommendation to the Finance Ministry in this regard.

Why is gold getting expensive? US companies are known to invest in the yellow metal, to hedge against currency depreciation, whenever there is an expectation that the dollar will weaken. This leads to a rise in demand for gold and prices rise. This is what happened on Friday pushing up international prices to a 27-year high.
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News from India - Gold, Oil, Sensex , and The Rupee

India's gold demand was low on Thursday as buyers waited for prices to ease further from their recent highs or stabilize to be able to make purchases, dealers said.

"There is a little bit of buying from those in dire need," said Ajit Shinde of Magna Projects Pvt Ltd in Kolkata, a large wholesaler. "But it should pick up for the festivals."

Shinde said for the time being, his clients, mostly in Kolkata, were willing to wait for a fall to 8,900 rupees per 10 grams.

Dealers in banks said demand was low with people hoping for a fall to $700 an ounce in overseas markets.

Foreign spot gold was down from Tuesday's 16-month high of $714.20, as the dollar, with which gold usually has an inverse relation, recovered against other currencies. It also eased on investor caution ahead of a U.S. interest rates meet next week.

Rupee / US Dollar Forex , Gold in India, and The Sensex index A slightly stronger rupee helped lower Indian gold prices, but not enough to inspire many buyers, dealers in banks said.

The country's biggest lender State Bank of India today led banking stocks on an upward trajectory on the bourses amid expectations the US Fed may cut interest rates, which can encourage capital flows into Asia. As many as 14 of the 18 banking stocks rose, lifting the segment index by 102.17 points to settle at 8,081.94 points. The index hovered in a range of 8,123.91 and 8,000.92 points. Marketmen said hopes of a rate cut by the US Federal Reserve, which might boost capital flows into Asia, helped strengthen sentiments on the stock exchanges. They said reports of SBI planning to raise Rs 10,000 crore also bolstered trading in banking stocks, especially that of the state-run lender. The SBI scrip gained Rs 51.70 or 3.18 per cent to pegged at Rs 1,675.85. ICICI Bank, the country's second-biggest lender, fell by 0.1 per cent to Rs 883.85. Scrips of three other lenders Federal Bank, Indian Overseas Bank and Yes Bank also declined. The other good performer in the segment was Kotak Mahindra Bank, which climbed up by Rs 24.75, or 3.31 per cent, to close at Rs 772.50 on heavy buying by funds.
The government appears set to approve Reliance Industries'' pricing formula for the gas it plans to produce from July next year, with minor changes. The Empowered Group of Ministers (eGoM), which had its third meeting today morning was near unanimous on the need to honour the government's commitment allowing marketing and price freedom to investors investing in oil and gas hunt, official sources said. Sources said, the government was likely to tweak the Reliance formula so that the price of gas is calculated in dollar alone, a move that will bring down 4.33 dollar per million British thermal unit price proposed by Reliance to about 4.2-4.22 dollar per mBtu. While no Minister attending the meeting commented on the deliberation, Petroleum Minister Murli Deora only said, the decision would be announced by External Affairs Minister Pranab Mukherjee. Sources said, the eGoM left the final decision on Pranab Mukherjee who will go on a five-day foreign visit tomorrow afternoon. Fertilizer Minister Ram Vilash Paswan, sources said, wanted a guarantee of gas supplies to fertilizer and steel plants.

Gold Demand to jump fifty percent in Rupees

India's demand for gold in 2007 is likely to jump by 50 percent, from 2006, to record levels as lower prices lift buying interest, a senior official of the World Gold Council said on Thursday.
If realised, Indian gold demand would exceed 1,000 tonnes for the first time.
"The early indications are for a very, very strong year for India's gold demand," Philip Olden, managing director and chief marketing officer of World Gold Council, told Reuters.
"If the price stays stable, then you are probably looking at demand which is at least 50 percent higher than last year," Olden said in an interview during a visit to India.
The World Gold Council is funded by the world's leading gold companies with the aim of promoting demand for the metal.
But if prices rise, volumes may fall -- though in value terms, gold demand may still jump by 50 percent, he added.
In 2006, India's demand for gold was 715.5 tonnes.
Latest figures from the WGC show India's gold demand in the first half of 2007 was 528.2 tonnes including jewellery and net retail investment
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"The import numbers in July are also very strong," Olden said.
The Indian gold price for .999 purity was at 8,920 rupees ($216.50) per 10 grams in Mumbai, down from 9,330 rupees on August 30 last year.
In May last year, prices hit an all-time high of 10,715 rupees.
Olden said that rising demand was driven by India's rapid economic growth as well as marketing initiatives.
MARKETING PUSH
However, growth could not be taken for granted, said the official who represents 23 global gold mining companies.
"We in the trade can't afford to be complacent even though demand is going very well," he said.
"Gold's primary competition tends to be those product categories that have a similar feel-good factor -- so it is things like fashion accessories, handbags, sarees, beauty treatments, holidays."
Moreover, per capita spending on gold in India was very low, which was an opportunity for growth, he added.
India's per capita gold consumption is 0.7 grams, half that of the United States and one third of the Middle East, WGC officials said.
Olden said the WGC's annual spending on marketing initiatives in India, a cost it shares with its 12 Indian partners, was between $16-$20 million and set to grow.
"Our strategic plans for the next three years assumes major increases in our budget in India, by about 50 percent."

Technorati Profile

Weekend Rupee / Dollar / Sensex stock market Gold India update

The Indian rupee is on a run. But not too many people are cheering. In fact, the government is in a tight spot as IT software companies reel under the rising currency woes. Margins and market valuations of India’s flagship software biggies have been hit and the small and medium sectors are showing signs of wilting under pressure.

For the Congress-led United Progressive Alliance government, which seeks the people’s mandate again in less than two years, it’s time to look for ways to tame the runaway rupee. The Congress, which sprang a surprise with its aam aadmi plank during the last Parliamentary polls, can’t afford to let inflation rise even marginally as it may hurt the ruling party in every state poll in the run-up to the Lok Sabha elections 2009.

And meanwhile, a steep rise of the rupee vis-à-vis dollar in the last five months has further complicated the situation for top money managers of the North Block and the Central Bank. If they allow the rupee to appreciate further in sync with market dynamics — some analysts forecast a stronger rupee at 38 in two years’ time — it will hurt export industries which, in turn, will shrink new job avenues. No doubt, the government would not like to see a rise in unemployment during an election year.
Sensex might be courting it happily, but the rogue rupee is fast getting on the nerves of the economy. Unless the government and the central bank step in with the baton at the earliest, the implications will be far more than just financial, feel market experts.

Phani Shekar of Angel Broking said, “Rising rupee is a problem, but the market at the moment thinks this is not a problem. But, at the end of the day, we are an export-driven economy and we will take a hit.”

“Forget stocks, the most disturbing scenario is the multiplier effect. The same multiplier effect which people said a couple of years ago would catapult the Indian economy, can work the other way if the rupee further rises to say 37 against the dollar. While high margin IT services may absorb it to some extent, BPOs, which operate on lower margins of 10-12%, will be badly hit. The worst hit will be the low-margin textiles and gem and jewellery sectors, which simply have to shut shop,” said Shekar.

The large-scale job losses in these sectors would then spill over to other sectors, dampening sentiments of portfolio investors, he added.

Reflecting this sentiment in a report dated July 17, Credit Suisse analysts Nilesh Jasani and Arya Sen said, “The impact of rupee appreciation is no longer limited to financial implications. Concerns regarding large-scale job losses in more labour-intensive sectors, such as textiles, handicrafts and leather, are being expressed more stridently. The commerce ministry itself has talked of a potential 275,000 job losses in export-oriented sectors, particularly amongst the smaller players.”

The rupee on Friday ended at a fresh nine-year high of 40.3200/3250 against the US currency, stronger by three paise from the previous close on strong portfolio inflows and weakness in dollar overseas.

The Reserve Bank of India (RBI), which is believed to have been preventing the rupee's surge past 40.40 level, remained mute during the day.

In somewhat lacklustre trade at the Interbank Foreign Exchange (forex) market, the local currency was trapped in a small range of 40.31 and 40.35 after resuming better at 40.3350/3450 a dollar.

The rupee drew support from encouraging cues from other high-yielding Asian currencies, which were firm against the greenback as well as strong global investment inflows into the Indian equity.

The capital inflows jumped to more than USD 9.0 billion so far in the year, following a massive and consistent inflow in the last 14 days.

Oil refiners also stayed away from the market despite rising global crude prices, which was a shed lower from USD 76 per barrel, forex dealers said.

The central bank was conspicuous by its absence following Finance Minister P Chidambaram's statement that India will maintain a "fairly tight" monetary policy to curb inflation that may be stoked by high crude oil prices and consumer demand, they added.
Both precious metals today surged ahead with silver advancing by Rs 55 per kg and gold by Rs 90 per ten gm on higher advice, traders at the Bombay Bullion Association said.

Silver fineness .999 opened high at Rs 18,250 per kg on fresh buying support. Later, it slightly improved and closed at Rs 18,255 per kg with a gain of Rs 55 from its last close.

In London, silver remained higher at 13.35/13.37 per troy ounce, compared to its last close of 13.32/13.35 per troy ounce.

Similarly, spot standard gold (99.5) and pure gold (99.9) also opend high at Rs 8,950 and Rs 9,000 per ten gm respectively. Later they further rose and closed at Rs 8,955 and Rs 9,005 respectively, gaining Rs 90 from their last close.

In the London market, gold was quoted higher at 679/680 per troy ounce against 676/679 per troy ounce, which helped to boost domestic prices, traders pointed out.

Following are the spot silver and gold closing prices: Silver (per kg) .999 grade : Rs 18,255 (18,200) Gold (per 10 gm): Standard mint 99.5 purity : Rs 8,955 (8,865) Pure gold 99.9 purity : Rs 9,005 (8,915)
So it’s a double whammy for the Central government. If the Reserve Bank intervenes to stop the rupee from appreciating further, it may increase the profitability of export-oriented units and create more jobs, but that may, in turn, bring in an inflationary tendency to the market. Thus, the government is virtually standing between the devil and the deep sea. It’s difficult to choose between inflation or unemployment!

Economist and member, Economic Advisory Council (EAC) to Prime Minister Dr Satish C Jha argues that the exchange rate should always be market-driven. “I have always argued that we should not intervene much on ups and downs of exchange rates. Let market forces determine that.

Also, we can’t forget that rupee has remained undervalued for quite sometime. I feel it will get stronger further and will hover around 38 in the next two years. We have seen a strong inflow of foreign capital into the market. How can we expect rupee to depreciate,” he questions.

A large part of India Inc, however, is not at all comfortable with the way the rupee is going. Industry bodies have been arguing that the government should step in immediately for the sake of export units and SMEs.

Analysts say that the tech bigwigs with their better management skills will manage to offset the rupee blow better, but the export industries would be hit hard. Amit Mitra, secretary general of industry body Ficci, feels that the government needs to give much more than the recent Rs 1,400-cr package for exporters.

“Our exporters are competing with those from China where the government devalues the currency whenever it feels like. India, too, should come forward in helping this labour intensive industry,” he says.

The recent export package may give some relief to the exporters as drawback rates have been increased for many sectors such as textiles, stainless steel, leather and bicycle parts. The finance ministry also announced lower interest rates for exporters in textile, leather exports, handicraft, engineering products, sports goods, toys and all SME sectors.

But will the government achieve its ambitious export target of $160 billion, up from the last year’s level of $125 bn? Minister of state for textile E V K S Elangovan admits that the current package is just a temporary relief. “We need a permanent solution to this problem of rupee appreciation vis-a-vis performance in exports. We have been working closely with the ministries of commerce and finance to chalk out a permanent solution to this problem,” he says.

Senior economist from ABN Amro Bank Gaurav Kapur estimates that the overall export growth could slip by about 15% this year. “Clearly, a stronger rupee will have a negative impact on manufacturing exports this year. Within services, the IT sector is suffering because of its large dependence on exports, particularly those denominated in US dollar. TCS, however, has managed to minimise currency risk by following a proactive hedging policy. But SMEs have been the worst hit. A slowdown in the US economy in the first half is also likely to have a negative impact on Indian exports,” he says.

The rupee has been hinging around 40 per dollar in April-June 2007 and is having a negative impact on many sectors of the economy.

Textile exports: As a result direct employment gained from textile exports has been reduced by 57,618 jobs in 2006-07. The incremental employment in the allied industries has also suffered a loss of 65,820 jobs during the year.

The textile and clothing industry is the largest employment provider in the country after the agricultural sector. The total direct employment in the textile industry as of March 2006 was estimated to be 33.17 million while the indirect employment generated was much higher at 54.85 million. The Confederation of Indian Textile Industry (CITI) estimates show that the deceleration in textile export growth from 16.6 percent in 2005-06 to 9.2 percent in 2006-07 has pushed down the employment from textile export trade by around 1.22 lakh jobs.

Engineering Export: The Engineering Export Promotion Council (EEPC) has said that engineering exports accounts for one-fifth of the country's total exports at $26 billion and if the rupee goes below 40 per US dollar, the new export contracts won't be undertaken.

When rupee appreciation takes place for an extended period of time, Indian engineering exporters do find it tough to export to the competitive markets in the US and the EU, especially at a time when export credit cost and domestic prices of steel and other raw materials are also north bound.

In an extremely competitive scenario, when the Chinese companies are flooding the global marker with bulk exports, it is virtually impossible for the Indian exporters to pass on the increased cost of product to the foreign buyers. During April 2007, the country's export growth was lower by 23.06 percent in US dollar terms and 15.39 percent in rupee terms. Full impact is likely to be felt in may and June.

Exporter Start Hedging Receivables: Bothered of appreciation of the rupee of the rupee, exporters have once again begun hedging their receivables in a bid to cut losses. Since beginning of April this year, the rupee has appreciated by over 5 percent. There are fears that the rising capital inflows will drive the rupee-dollar exchange rate below Rs. 40. With exporters now resorting to hedging their receivables, the forward premia has dipped to 3 percent from about 5 percent during the beginning of this fiscal.

Community exporters and software companies are among those are resorting to hedging. Infosys and TCS have already increased their hedging limits.

However, foreign institutional investors have a reason to cheer about. Senior economist from Crisil Sunil Sinha explains how the appreciation of rupee is in favour of FIIs. “If an FII invests $1, it will mean he has invested Rs 40 in the market. If he earns a profit of, say, 100% in six months, he will have Rs 80 in the market. But if the rupee gets stronger in those six months , he will earn more than a dollar, besides his investment. But this is only one factor. With the economy promising a growth of around 8-8.5%, it makes sense to remain invested,” he says.

That’s a clear illustration. On the flip side, however, more FII inflows will make the rupee even stronger. Dr Rajiv Kumar, director, Indian Council for Research on International Economic Relations (Icrier), suggests that a model adopted earlier by Chile should be replicated in India too. “One way to tackle the present situation is to limit or slow down the FII inflow. FIIs should not be allowed to invest straightaway in the market. There could be a rule under which the FII money should compulsorily be locked with the RBI for three months with no interests on it,” he says.

Even industry lobbyists are pushing for another model to contain the surging rupee. They feel that the RBI in collaboration with the ministry of finance should permit the issuance of infrastructure bonds, thereby helping the dollar out of the reserves. This will allow mopping up of rupee and increase the reserves in rupee terms.

However, analysts are divided on whether the government should intervene in the exchange rate mechanism or should leave it purely to market dynamics. Dr Deepak Dasgupta, lead economist from the World Bank’s India chapter, strongly feels that everything can’t be left to the market dynamics. “Global experiences show that foreign exchange market is not necessarily a very efficient market. It’s volatile just like the stock market. Hence, some amount of government intervention is needed from time to time,” he argues.

Meanwhile, a stronger rupee means better business for certain sectors as well. Explains Vinnie Mehta, executive director of Manufacturers Association for Information Technology (MAIT): “For a import-intensive industry such as IT hardware, the rising rupee is actually a blessing. We are, however, not really seeing any big impact on prices of IT hardware items coming down because in many cases, the rising rupee is being offset by the rising yen.

Our industry is heavily dependent on imports from China and South East Asia. If the rupee continues to remain strong, prices of IT hardware could come down for the users since manufacturers will be able to negotiate large deals for imports at competitive prices.”

Mr Kapur from ABN Amro Bank points out how the companies are benefiting from lower servicing costs on their external commercial borrowings. “This is reflected in the first quarter results of Ranbaxy, for instance. But if you look at the companies which are able to gain out of this situation, they are mainly big in size. Hedging for small and medium sized companies is not only difficult but a costly affair,” he adds.

The gainers from a strong rupee still belong to the minority camp. However, they get support from market idealists. Says Mr Jha from PM’s EAC: “We can’t ignore how a strong rupee may help the government in reducing the petroleum imports bill, and also wheat imports. Yes, export industries are hit to an extent, but we can’t ignore the fact that unlike China, our economy is driven by domestic demands and not by exports.”

What happens in the forex markets in weeks and months to come is still not certain. But the government and India Inc will definitely be watching the currency dilemma very closely.

Rupee / US Dollar Forex Currency News, Gold in India, and The Sensex index on the Bombay Stock Exchange (BSE). Euro / Rupee and Yen / Rupee.

The Rupee pushes in to new territory vs the US Dollar

The rupee on Tuesday ended at a fresh nine-year high of 40.3725/3825 against the U.S. currency on sustained capital inflows into the country and in the absence of any dollar demand. The local currency had touched the 40.53-level on May 20 and the 39.85-mark on May 13, 1998.

In quiet trade at the inter-bank foreign exchange market, the rupee moved in a small range of 40.37 and 40.43 after resuming strong at 40.39/40 a dollar against Monday’s close of 40.42/43 a dollar. It continued to draw support from consistent and heavy foreign investment flow, which in turn, attracted traders to build positions in the local currency.
The rupee on Tuesday ended at a fresh nine-year high of 40.3725/3825 against the US currency on sustained capital inflows into the country and in the absence of any dollar demand.

The local currency had touched 40.53 level on May 20 and 39.85 mark on May 13, 1998.

In quiet trade at the Interbank Foreign Exchange (forex) market, the Indian unit moved in a small range of 40.37 and 40.43 after resuming strong at 40.39/40 per dollar from Monday's close of 40.42/43 a dollar.

The rupee continued to draw support from consistent and heavy foreign investment flow, which in turn, attracted traders to build positions in the local currency, forex dealers said.

Traders anticipated some dollar demand from public sector banks at the behest of the central bank but dollar buying was not forthcoming despite global oil prices hovering around USD 72 per barrel, they added.

The Reserve Bank of India (RBI), which seemed interested in holding the rupee at 40.50 level for the past one month, failed to get the opportunity to intervene in exchange market in view of a substantial portfolio inflows in the last six to seven days, a leading dealer with a foreign bank said.

FII inflows into equity markets has driven the rupee by about 9.5 per cent so far in the calendar year. The RBI, however, fixed the reference rate for the US currency at Rs 40.41 per dollar and for the single European unit at Rs 54.98 per euro.

In cross-currency trades, the rupee was marginally up against the British sterling but eased against the Euro and the Japanese Yen.

The Indian unit ended slightly higher against sterling at Rs 81.42/44 per pound from Monday's close of Rs 81.44/46 per pound but moved down further against the European currency to end at Rs 55.11/13 per euro against previous close of Rs 55.08/10 per euro.

The rupee also eased against the Japanese unit to end at Rs 32.78/80 per 100 Yen from overnight close of Rs 32.76/78 per 100 yen.
Thailand's export value in baht terms will be 12.49 per cent lower in the second half of the year than the first due to the continued appreciation of the currency, the University of the Thai Chamber of Commerce (UTCC) said yesterday.
Indian Rupee vs. US Dollar / Gold Forex currency and money exchange
The estimate is based on an exchange rate of Bt34.48 to the US dollar and an assumption that the currency will lose some value during the rest of the year.

The government had projected export growth at 12.5 per cent for the year, to US$145 billion (Bt4.9 trillion), based on an exchange rate of Bt35.50-Bt36 to the dollar.

The university said the Kingdom would achieve its growth target of 12.5 per cent in dollar terms but that it would post lower income in baht terms.

UTCC also expects a decline in the growth rate of export revenue in the third quarter, particularly in the European, Asean, Australian and Chinese markets, due to the stronger baht.

Aat Pisanwanich, director of the university's Centre for International Trade Studies, said exporters had faced a currency loss of 8.19 per cent in the first half of the year and another 12.49 per cent is expected in the second half, compared with the first six months. He said small and medium-sized enterprises (SMEs) would suffer the most from the stronger baht, because of a lack of credit flexibility.

The university also forecast that the baht would continue its appreciation in the third quarter and record a new peak of 32.50/33.50 to the dollar. It predicted the average value would stand at 34.48 to the dollar this year.

However, the current-account surplus will remain, which will further push the currency to Bt34.01 in the third quarter - up 9.65 per cent from the same period last year.

Based on a survey of 150 respondents, 53 per cent said their business was facing difficulty because they are SMEs.

Major sectors suffering from the stronger baht include garments, jewellery and furniture.

In the first five months, furniture-export value fell 17.63 per cent, garments 10.09 per cent and jewellery 8.25 per cent.

The university forecast that exports would increase 9.1 per cent in the third quarter and 3.37 per cent in the fourth.

To tide over the drop in the baht value of exports, Aat said exporters would have to quote higher prices to compensate for the losses in the remaining months of the year.

"An increase in selling prices will slow export growth in the second half, compared to the first half of about 18 per cent," he said.

To ensure export competitiveness, the university called on the government to encourage exporters to invest in neighbouring countries, while creating short-term measures to stabilise the value of the baht.

The baht is among the three Asian currencies that have appreciated the most, after the Indian rupee and the Philippine peso.

In addition, the university found that by the year-end, the current-account surplus should more than double to reach $7.72 billion, from $3.24 billion last year. The trade surplus will reach $7.36 billion, with exports of $145 billion and imports of $138 billion, it said.

However, it forecast that the country would miss its target for the number of tourists this year, with arrivals likely to reach only 13.9 million against the target of 14.8 million, due to political concerns earlier in the year.

Indian Rupee / Equity Indexes continue moving higher. Getting Long Gold.

Gold is likely to retain its investment sheen overseas this year but a strong rupee is expected to keep it well under Rs 10,000 per 10 grams in the local market, bankers and analysts said on Friday.

A poll of 13 banks and brokerages showed a median price of Rs 9,210 for gold by the end of December and an average price of Rs 8,950 for 2007.

"Worldwide gold still continues to be seen as an investment and as a portfolio diversifier," said Rajan Venkatesh, managing director - India Bullion at ScotiaMocatta.

"The Chinese are looking at whether they can divest their dollar assets... there is a worrisome factor over the US economy," he said stating factors that are supporting gold.

A weaker dollar, as the US faces sluggish economic growth, means gold gains in value as investors switch to the commodity in search of better returns.

In the local market, though, gold is likely to be softened by a stronger rupee against the dollar, keeping prices in the Rs 9,000 terrain, bankers and analysts said.

"At the end of the year, gold could head towards $680-$700 an ounce, but over here, the impact won't be that much," said a senior dealer in UTI Bank Ltd.

The rupee has appreciated by nearly 9 per cent against the dollar from January, making the import-driven yellow metal cheaper for Indians.

On Friday, August gold on the Multi Commodity Exchange of India Ltd was at Rs 8,561, after touching its lowest level this year on Thursday at Rs 8,552.

A similar poll in April had seen the year-end prices for gold at Rs 9,920, while the January one had put it higher at Rs 10,350.

"People were expecting the US to lower interest rates, but that did not happen," said a senior dealer at Kotak Mahindra Bank Ltd. "The second surprise was the rupee's appreciation."

Going ahead, the rupee would be closely watched for its play on gold, analysts and bankers said, but opinions on its outlook were mixed.

"By the end of 2007, we are probably headed towards Rs 38 to a dollar," said Kishore Narne, vice president at Anand Rathi Commodities.
Gold and silver rose in New York after a decline in the value of the dollar boosted the appeal of precious metals as alternative investments.
The sensex continues its inexorable run and scales new peaks. Seven months after it went past Point 14000, the bellwether index rapelled up to 15000 — but then slid off the perch and remained tantalisingly short of that historic level.

The climb to another dizzy peak began around noon after a pretty skittish start to the day’s trading. After opening at 14843.43, it hit a high of 15007.22 as software stocks started to sizzle just before the start of another earnings season. The index, however, failed to sustain the level and ended the day off the record highs at 14964.12, a net gain of 102.23 points or 0.69 per cent over yesterday's close of 14861.89.

The new peak was scaled after seven months and 144 trading sessions and reflected the growing confidence that local and overseas investors have in the Indian growth story with worries about inflation and interest rates starting to recede.

But there are a couple of things that are odd about this rally: first, it isn’t broad-based enough with only half of the index constituents rallying since it scaled 14000 last December. The other 15 stocks have actually dipped since then and have under-performed the sensex.

Second, it isn’t usual to see the index rally bang in the middle of a monsoon when business is usually slow. In fact, the market tends to dip in May and then start to rally in early September before the festive season begins. The last time that the market rallied during a monsoon was more than two years ago when the sensex scaled 7000 on June 20, 2005.

This is also the longest interval between two peaks — all of seven months. Barring the transit from 12000-13000 which took a period of six months, most of the other 1000-point rallies have taken between one and three months. Analysts said this rally was built on strong liquidity flows.

“Globally, the asset allocation is changing. It is moving from developed markets to Asian markets, excluding Japan. India is one of the major beneficiaries,” said Dhiraj Sachdev, vice-president of HSBC Asset Management.

Brokers say the strong growth of the Indian economy and comfortable inflation number, which has lowered the threat of interest rate hikes, are the major factors that have attracted investors even though there have been some worries about the high valuations of Indian stocks.

“It’s not the time that one should uncork the bottle of champagne. If we analyse, it can be seen that the rally this time around is not broad-based. Only a few stocks have gained and many have been laggards,” said V.K. Sharma, head of research at Anagram Stock Broking.

Brokers say while Reliance Industries, the State Bank of India, Larsen & Toubro, Bharti Airtel and ICICI Bank have appreciated in the current 1000-point rally, many others like Infosys, Tata Consultancy Services and ITC have seen their stocks wilt.

With the results season kicking off next week, it’s clear that the stream of numbers will decide which way the sensex will head in the days ahead.

Infosys is set to announce its first-quarter results on July 11 and brokers warn that if the Bangalore-based company reports numbers or issues a guidance that is below expectations, there could be a correction.

Given such an outlook, experts say retail investors should take stock specific decisions. “Just because 15,000 has been attained, the investor should not rush in. He must analyst each case individually and then decide whether to invest or not,” Arun Kejriwal, director, Kejriwal Research and Investment Services said.

Sachdev was referring to the continued support lent by FIIs. Figures indicate that the FIIs pumped in more than Rs 7,400 crore into equities in the five days between June 29 and July 5.

Sentiment has turned against the information technology companies like Infosy, Wipro and TCS due to the appreciation of the rupee, which many reckon will crimp their profit margins.

Gold generally moves in the opposite direction of the U.S. dollar, which fell against the euro even after a report showed more jobs were created last month than forecast. Before today, gold had gained 2 percent this year while the dollar had dropped 3 percent against the euro.

``Gold's inverse relationship to the dollar is very strong,'' said Frank Lesh, trader at FuturePath Trading LLC in Chicago.

Gold futures for August delivery rose $6.40, or 1 percent, to $657 an ounce at 11:35 a.m. on the Comex division of the New York Mercantile Exchange. The metal is up 0.9 percent for the week.

Silver futures for September delivery rose 24 cents, or 1.9 percent, to $12.82 an ounce on the Comex. Before today, the price had declined 2.7 percent this year. Silver was up 2.9 percent for the week.

Employers added 132,000 workers to payrolls last month, the U.S. Labor Department said. Economists projected employment would rise by 125,000, according to the median of forecasts in a Bloomberg survey. The increase followed a 190,000 gain in May that was larger than previously reported.

Gold also gained on higher oil prices. Some investors buy precious metals when energy costs rise to guard against inflation. Oil futures rose as much as 1.6 percent today to $72.94 a barrel, heading for fourth straight weekly gain.

Gold, Crude Links

The price of gold has more than doubled in the past six years as the price of crude has almost quadrupled, reaching a record $78.40 a barrel last July.

``We remain positive on gold based on a mix of supply and demand and macro and monetary catalysts,'' John Hill, an analyst at Citigroup in San Francisco, said today in a note to investors. ``The drivers that have lifted gold by $50 to $150 an ounce per year remain firmly in place and we expect gold to work much, much higher over time in what has to be one of the simplest, most obvious calls in the capital markets.''

Gold will average $700 in the second half of this year and $750 in 2008, Hill said.

Still, some investors remain sidelined.

``Gold should be doing better in the face of the weak dollar and $72 oil,'' William O'Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey, said in a report today. ``It seems that many analysts like gold long term, but the near term action continues lackluster.''

But some bankers said the central bank may intervene to keep the rupee steady at current levels to protect export earnings. Physical buying may surge this year as prices forecast seem attractive, poll participants said.

"We are expecting demand to be strong in the festival season that begins in the middle of August," said Scotia's Venkatesh.

Buyers are likely to see prices in the light of India's all time high of Rs 10,715 in May last year, participants said.
Gold and silver rose in New York after a decline in the value of the dollar boosted the appeal of precious metals as alternative investments.

Gold generally moves in the opposite direction of the U.S. dollar, which fell against the euro even after a report showed more jobs were created last month than forecast. Before today, gold had gained 2 percent this year while the dollar had dropped 3 percent against the euro.

``Gold's inverse relationship to the dollar is very strong,'' said Frank Lesh, trader at FuturePath Trading LLC in Chicago.

Gold futures for August delivery rose $6.40, or 1 percent, to $657 an ounce at 11:35 a.m. on the Comex division of the New York Mercantile Exchange. The metal is up 0.9 percent for the week.

Silver futures for September delivery rose 24 cents, or 1.9 percent, to $12.82 an ounce on the Comex. Before today, the price had declined 2.7 percent this year. Silver was up 2.9 percent for the week.

Employers added 132,000 workers to payrolls last month, the U.S. Labor Department said. Economists projected employment would rise by 125,000, according to the median of forecasts in a Bloomberg survey. The increase followed a 190,000 gain in May that was larger than previously reported.

Gold also gained on higher oil prices. Some investors buy precious metals when energy costs rise to guard against inflation. Oil futures rose as much as 1.6 percent today to $72.94 a barrel, heading for fourth straight weekly gain.

Gold, Crude Links

The price of gold has more than doubled in the past six years as the price of crude has almost quadrupled, reaching a record $78.40 a barrel last July.

``We remain positive on gold based on a mix of supply and demand and macro and monetary catalysts,'' John Hill, an analyst at Citigroup in San Francisco, said today in a note to investors. ``The drivers that have lifted gold by $50 to $150 an ounce per year remain firmly in place and we expect gold to work much, much higher over time in what has to be one of the simplest, most obvious calls in the capital markets.''

Gold will average $700 in the second half of this year and $750 in 2008, Hill said.

Still, some investors remain sidelined.

``Gold should be doing better in the face of the weak dollar and $72 oil,'' William O'Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey, said in a report today. ``It seems that many analysts like gold long term, but the near term action continues lackluster.''

Gold and silver rose in New York after a decline in the value of the dollar boosted the appeal of precious metals as alternative investments.

Gold generally moves in the opposite direction of the U.S. dollar, which fell against the euro even after a report showed more jobs were created last month than forecast. Before today, gold had gained 2 percent this year while the dollar had dropped 3 percent against the euro.

``Gold's inverse relationship to the dollar is very strong,'' said Frank Lesh, trader at FuturePath Trading LLC in Chicago.

Gold futures for August delivery rose $6.40, or 1 percent, to $657 an ounce at 11:35 a.m. on the Comex division of the New York Mercantile Exchange. The metal is up 0.9 percent for the week.

Silver futures for September delivery rose 24 cents, or 1.9 percent, to $12.82 an ounce on the Comex. Before today, the price had declined 2.7 percent this year. Silver was up 2.9 percent for the week.

Employers added 132,000 workers to payrolls last month, the U.S. Labor Department said. Economists projected employment would rise by 125,000, according to the median of forecasts in a Bloomberg survey. The increase followed a 190,000 gain in May that was larger than previously reported.

Gold also gained on higher oil prices. Some investors buy precious metals when energy costs rise to guard against inflation. Oil futures rose as much as 1.6 percent today to $72.94 a barrel, heading for fourth straight weekly gain.