INDIAN BANK
HO/INTERNATIONAL DIVISION
66 Rajaji Salai, Chennai - 600 001
Website : www.indian-bank.com
FOREX NEWSLETTER
(FORTNIGHTLY)

Currency Outlook

The USD/INR opened the fortnight at 45.92 and traded a range of 45.84 - 46.46 before closing at 46.04/05. USD movements globally based on interest rate concerns and the consolidation in the local stock market dictated rupee moves. Fed hiked rates by 25 bps to 5.25 % as expected but the language of the accompanying statement was perceived less hawkish by the market and hence USD suffered losses. INR made good much of its losses and closed the fortnight at 46.04 / 05. However rising oil prices and widening trade deficits remain a worry for India.

Forwards witnessed paying with 6 months premium moving up from 0.95 % levels to 1.35 % on possibility of hardening interest rate scenario. The six months premium closed the fortnight at 1.10 %.

During the ensuing fortnight we expect USD/INR to be capped at 46.15 levels and move down to 45.65 levels. Forwards are expected to trade a range of 0.95 % and 1.25 % with dips presenting good opportunities to pay.

Euro moved down initially to 1.25 levels as the market bought USD in a prelude to the 29th FOMC. The tone of the Fed statement conveyed that further hikes would be dependent on out coming data about growth and inflation but the statement also said that the growth was moderating. So market perceived the statement as less hawkish and accordingly dollars were sold with Euro moving higher and closing the fortnight at 1.2790 levels. The recent hawkish comments of ECB members also aided Euro's up move against USD.

In the ensuing fortnight we expect Euro to get supported at 1.2705 levels for a move higher to test the recent range highs of 1.2970.

EUR/INR is expected to be in the range of 58.30 and 59.50

GBP followed Euro in its moves, falling initially from 1.8490 to 1.8095. The death of David Walton, the lone MPC member voting for a rate hike also added momentum to the GBP fall. However, the dovish Fed combined with an upwardly revised Q1 UK GDP and a narrowing of trade deficit saw GBP making good, much of its losses and closing the fortnight at the opening levels of 1.8495.

In the forthcoming fortnight, 1.8370 is expected to lend support to GBP for a move higher to 1.8710 levels against USD.

GBP/INR is expected to trade a range of 84.30 and 85.70

JPY also showed the same pattern of initially weakening from 114.70 to 116.6 on Fed meeting expectations and later gaining and closing the fortnight more or less near the opening levels of 114.42. Though JPY was affected by the furor over BOJ Governor Fukui's investment in the Murakami fund, the improving economy and continuing inflation have kindled hopes of BOJ rate hikes and lent some support to JPY.

We expect USD / JPY to get trade a range of 113.40 - 115.50 with selling USD on up ticks being the favored strategy.

JPY/INR is expected to trade a range of 39.60 and 40.50

Other News Items

India and China have reached a historic agreement to resume border trade through strategic Nathu La ( Pass) from July 06, after 44 years of closure.

The reopening of Nathu La would boost the local economies of the land locked mountainous regions of the two Asian giants and promote bilateral trade. The agreement allows residents living on the border areas of the two countries to trade nearly 30 items mentioned in the border trade agreements of 1991, 1992 and 2003. The items include, agricultural implements, grain, blankets, agro-chemical products, dry fruit, beverages and canned foods.

The reopening of border trade will help end economic isolation in this area and play a key role in boosting market economy there. It will also boost the transportation, construction and service industries paving the way for a major trade route that connects China and South Asia.

Trading through Nathu La accounted for 80 percent of the total border trade volume between China and India in the early 20th Century. Nathu La is 4,545 meters above the sea level.

At present, China and India trade mostly through the sea route. With the reopening of Nathu La, iron ore and live stock products from India, and wool, herbs and electric appliances from China can be transported through the short cut. Tibet is also expected to benefit much from the resumption of border trade at Nathu La. If only 10 percent of trade between India and China goes through the pass, it means trade of more than USD 1 billion as quoted by the Chinese news agency Xinhua.

(Courtesy: Business Standard)

India's merchandise exports shot up by a record 29.5 % to USD 9.35 billion in May 2006, compared with USD 7.2 billion the corresponding month last year. Imports touched USD 13.90 billion, representing an increase of 21.6 % over USD 10.8 billion in the same month last year, according to provisional data released.

Exports during April-May 2006 stood at USD 17.7 billion, up 28.4 % from USD 13.78 billion in the year ago period. Imports touched USD 25.7 billion, a jump of 22.7 % over the level of USD 21 billion in the corresponding period last year.

But, there are some downsides too. What took fizz out of the exports figures were the high vault in total import figure, including oil import, which caused a worsening of the trade deficit.

Oil imports in May 2006 stood at USD 4.15 billion, an increase of 27.3 % compared with the corresponding period last year when it was USD 3.2 billion. The non-oil imports during May 2006 is USD 9 billion, which is 19.2 % more than the level of such imports worth USD 7.5 billion in May 2005.

Oil imports during April - May 2006 touched USD 8.3 billion, a hike of 31.44 % against the figure of USD 6.30 billion in the corresponding period last year.

Non-oil import in April-May 2006 are estimated at USD 17.4 billion, a increase of 19 % from the level of such imports at USD 14.6 billion in the same time-frame of the previous year.

Trade deficit for Apr - May 2006 was estimated at USD 8 billion, higher than the deficit of USD 7.2 billion during the corresponding period, last year.

(Courtesy: The Financial Express)

IT IS DESTINATION INDIA FOR JAPANESE CHIP DESIGNER,

Moving up the IT value chain, India has been emerging as a major center for chip design in recent years. However, while European and US companies have already established chip design centers in the country, the Japanese were conspicuous by their absence. Now, it seems even they are slowly trooping in.

Japanese firms such as Sony, Matsushita Electric, Sharp, Fujitsu, Rohm, Toshiba and Sanyo have already set up their software development centers in the country. And more recently they have been joined by chip design firms like Kawasaki Microelectronics (K-Micro) and SoCrates Software. RenesasTechnology too will be possibly setting up base in India soon.

A Chip or microprocessor is essentially a piece of hardware, silicon wafer, with embedded software and etched circuits. Electronic hardware design involves designing chips with the help of automated design tools and is seen as the soft part of hard ware development.

The recent attention of Japan towards India, is owing to a lot of reasons including a revival of Japan's economy, recognition of India's ability to innovate and value add through designs, as well as India itself being seen as a growth market through affordability of the middle class for the latest gadgets.

The ISA - Frost & Sullivan report on the Indian Semi-conductor industry estimates chip designs executed in India going up to a compounded annual rate of 13 per cent over the next ten years from 320 in 2005 to 1,075 in 2015.

Total revenue from chip designing done in India is estimated to go up to USD 43 billion by 2015 from USD 3.2 billion in 2005.

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(Courtesy:Business Standard)

 

FCNRD(w.e.f. 03.07.2006)						NRE(w.e.f. 03.07.2006)
PERIOD	USD	GBP	EUR	CAD	AUD	NRE
1 Year & above but less than 2 years	5.69	5.01	3.52	4.65	6.20	6.70
2 Years & above but less than 3 years	5.69	5.13	3.82	4.73	6.21	6.70
3 Years & above but less than 4 years	5.68	5.19	3.94	4.79	6.28	6.70
4 Years & above but less than 5 years	5.70	5.21	4.03	4.84	6.29	6.70
5 years only	5.72	5.21	4.10	4.90	6.30	6.70
SB NRE - 3.50 % at par with domestic savings deposit

 

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