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

Currency Outlook

USD/ INR moved in a range of 43.44 - 43.59 during the last fortnight. USD was bid higher reportedly on Nationalised banks’ supports and hedging by some Oil companies.
For the ensuing fortnight we expect USD / INR to cap at 43.60 levels for a move down to test 43.40 levels.

Cash dollar shortage saw forwards dropping to lower levels with the near months Aug and Sep going into discount. Six month premia dipped down to 0.67 % before closing the fortnight at 0.97 % as cash shortage started dissipating slowly.

Euro moved higher against USD last fortnight as some central banks reportedly adjusted reserves favouring Euro. The barrier at 1.2250 gave way and Euro propelled higher despite good US economic data like higher Non-Form Pay Roll Data, increase in July retail sales and a rate hike of 25 bps by Fed. The Euro closed the fortnight at 1.2360 levels moving down from highs seen at 1.2485 as the higher than expected US capital inflows data tilted the market in favour of USD.

In the ensuing fortnight, we expect Euro to be supported at 1.2265 levels for a move higher targeting 1.2525.

Against INR, EUR is expected to trade in the range of 53.35 to 54.45.

The GBP moves last fortnight followed in the lines of Euro with GBP moving up from 1.7566 levels to 1.8185 before closing at 1.8115. BOE cut its repo rate from 4.75 % to 4.50 % as anticipated by the market. This did not have much effect on the upmove of GBP as market viewed it as a one time preventive move rather than a beginning of a series of rate cuts. Subsequent UK CPI and PPI data seemed to reinforce these expectations.

In the ensuing fortnight, we expect GBP to get supported at 1.8000 levels for a move higher to 1.8380.

Against INR, we expect GBP to trade in the range of 78.35 to 79.95.

USD lost against JPY in the last fortnight moving down from 112.50 and closing the fortnight at 109.23 / 25 as foreign inflows into the Tokyo stocks propelled them to four year highs. Better economic data from Japan also aided the JPY. The loss of postal reform bills in the Japanese Parliament did not do much harm to JPY as Koizumi called for elections on Sep 11, which increased his rating.

In the ensuing fortnight, we expect USD to get capped at 110.10 levels against JPY and move down to 107.85 levels.

Against INR, JPY would trade in a range of 39.50 and 40.35

Other News Items

The import of silk-fabric and yarn into India has increased by 32.5 pct to Rs. 1336 cr. in 2004-05 over the previous year even as exports declined by 6.7 pct. Growing silk-fabric and silk-yarn imports are harming the interests of powerloom weavers, especially in the Benaras region. The Central Silk Board(C SB), along with five other bodies of powerloom silk-fabric producers, had filed a petition in May, to Directorate General of anti-dumping and allied activities, alleging dumping of Chinese silk-fabrics of weight 20-100 gms/meter.
(Financial Express)

Copper manufacturers have been hit by cheaper imports of ingots from Sri Lanka, under the Indo-Sri Lanka Free Trade Agreement(FTA). FTA allows duty-free imports of a range of copper products from Sri Lanka. Although it is mandatory that at least 35 pct of value addition takes place in Sri Lanka to have duty-free access to the Indian market, this condition is often circumvented by Sri Lankan exporters. Scrap from third countries are being remelted and cast into ingots in Sri Lanka, which, according to the domestic industry, is not a process involving value addition required for duty-free access to Indian market.

Coffee exports are likely to decline to a 10 year low this calendar year as growers and traders hold back stocks in anticipation of better prices. In the first seven months, coffee exports have declined by 38 pct to 1.01 lakh tones compared with 1.64 lakh tones during the same period a year ago. Non-availability of coffee in the market has forced exporters not to book orders. The quality of grades like arabicas could be affected as it has been raining for the last few weeks in the main growing areas. If the quality is affected, the coffees may get discounted. Though the export volumes have seen a drop, the value of exports is on an upswing. The value of exports till date in current calendar stood at Rs. 712.71 cr compared with Rs. 826.46 cr.

India’s exports to Africa are likely to touch to USD 6 Bio by 2010 from the existing level of USD 2 Bio. The seven key areas identified are food processing plant, pharmaceutical machineries, textile machineries, floriculture projects, Leather processing plants, port development and mining, which have potential for cooperation between India and African Industries. India’s trade with the African region has been growing steadily as its exports, which stood at USD 821 Mio back in 1994-95 reached USD 2 Bio by the end of 2004-05.

(The Economic Times)

India’s basmati exports in FY 05 touched an all time high of 11.2 lakh tonne, up 45 per cent. In value terms, the exports rose to Rs. 2741.94 cr compared to previous year’s figure of Rs. 1990.92 cr. Export of rice has emerged as a significant foreign exchange earner for the country, fetching USD 1.48 Bio in FY 05 against USD 918 Mio in FY 04. Earnings of Foreign Exchange from Basmati rice has increased to USD 612 Mio from USD 442 Mio.

(Business Standard dt. 10 08 05)

FCNRD(w.e.f. 08.08.2005)				NRE(w.e.f. 02.08.2005)
PERIOD	USD	GBP	EUR	NRE
1 Year & above but less than 2 years	3.97	4.27	2.00	4.70
2 Years & above but less than 3 years	4.13	4.22	2.15	4.90
3 Years & above but less than 4 years	4.20	4.26	2.30	5.00
4 Years & above but less than 5 years	4.27	4.29	2.44	5.00
5 years only	4.32	4.32	2.57	5.00
SB NRE (w.e.f.01.07.2005) 3.70

 

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