(Fortnightly)

Currency Outlook

Foreign funds have been net sellers in stock market, after the surprise poll verdict ushered in a new coalition government, dampening investor sentiment. Panic buying pushed the dollar to 46.00 before normalcy prevailed. USD closed the week at 45.48. Expect a broad 45.20 - 46.00 range over the next fortnight. Only a break on either side will give further direction.
USD continued to be at a discount, with Banks/customers doing bull/sell swaps to cover their exposures. Six month's forwards is presently trading around - 0.50%. Expect a range of - 0.35% to - 0.70% over the next fortnight.

The Reserve Bank of India has announced a gold card scheme for customers, whereby they would be eligible for better rates of interest, faster and simpler processing of credit sanctions and preference for grant of Foreign Currency Packing Credit. On the basis of their track record, the gold card holders, in due course, will be considered for issuance of Foreign Currency Credit Cards. - The Hindu, 28th May 2004.

Euro seems to have gained the upper hand against the dollar recently. The present bullishness can push the Euro upto to 1.2350 or 1.2475. Only if Euro is able to hold above 1.2500, we might see earlier highs at 1.2930 tested. Otherwise, we might see Euro once again dip below 1.1800.
Against Indian Rupee, Euro is expected to trade between 54.75 and 56.20 with a bias to the upside.

India's exports for the year 2003-04 were estimated at USD 61845.10 million, a growth of 17.26% over the 2002-03 level. Traditional exports like gem and jewellery, engineering products, chemical and petroleum products have done exceptionally well. Imports at USD 75209.06 million showed an increase of 24.96% over the previous year. Non-oil imports were a major contribution for the increase. Trade deficit at USD 13363.96 million was also higher than the previous year's deficit of USD 7446.54 million. - Business Line, 18th April 2004.

Bank of England raised UK interest rates 25 basis points to 4.25% recently. With more rate rises expected during the year, sterling will continue to remain bid against dollar. The current bullish mood will be maintained only if sterling breaks and stays above 1.8525. Failure to do so, might see it dip back to 1.75/1.70 area.
Against Indian Rupee, sterling is expected to move between 82.00 and 84.50, with a bias to the upside.

Poor countries like Bangladesh and Sri Lanka are likely to be hit hard, whereas India along with China is expected to benefit when the quota system on import of textile and garments is abolished. India's exports are likely to spurt by over 185 percent on this account. India's advantage lies in the fact that it was one of the few countries with an integrated supply chain, whereby raw cotton and silk is grown and converted into yarn, woven into fabric and made into garments within the country. - The Hindu, 7th May 2004.

The current dollar bearishness might see this pair test 108.00 before buyers emerge. Major support at 103.50 and resistance at 115.00. Against Indian Rupee, Japanese Yen is expected to stay between 40.20 and 42.30.

Major Indian Auto makers Maruti Udyog, Hyundai Motor India and Tata Motors have each earned export revenues of Rs. 1000 crores for the year ended March, 2004. The sharp export growth is attributed to the success of their new models in European markets.