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

Currency Outlook

The pair opened at the levels of 44.0150/0200 and traded to a high of 44.1400 on continuous demand from importers and oil companies. Hurricane Katrina’s damage to world’s biggest economy continued to result in uncertain movements in the pair.

However during the fortnight, surging Sensex backed by FII inflows saw rupee recover from the lows of 44.14 to 43.7250. Though oil prices have come off from the highs of USD 70 to $65 levels, dollar bid continued and ultimately saw USD/INR closing at 43.8850/8950 levels .

The decision of RBI to include Chinese Yuan in the REER basket is expected to help stabilize the Rupee, in the long run. USD/INR is likely to stay in the range of 43.65-44.05, with mild bias for a firm Rupee .

Forwards remained firm. 12 month premia got supported at 0.40 pct and moved higher to 0.65 pct before closing the fortnight at 0.61 pct.
For the period ahead, 12 months is expected to range between 0.50 - 0.90 pct. (22 ps to 40 ps.).

During the fortnight ended 15 09 05, Euro opened at 1.2347 and moved in the range of 1.2195-1.2590 before closing at 1.2224. The uncertainity on the outcome of elections scheduled for Sunday (18 09 05) kept EURO bearish.

In the ensuing fortnight, we expect Euro to be supported at 1.2193 the daily trend line bottom, break of which would lead to 1.1870. Otherwise it will re-trace the previous highs like 1.2350/1.2590.

Against INR, EUR is expected to trade in the range of 52.05-55.20

Cable opened at 1.8040 and moved in a range of 1.8006-1.8501, largely reflecting the sentiments in favour of USD. Despite the uncertainities of a possible rate-hike on 20.09.05 - FOMC meeting, dollar was bought. Bank of England in its meeting held on 08 09 05 kept the rates unchanged at 4.50.

In the ensuing fortnight, GBP is likely to find resistance at 1.8251 while 1.8010 is expected to lend support. However a firm break of 1.8010, would see the currency move lower to 1.7815/1.7650 levels

Against INR, we expect GBP to trade in the range of Rs.78.10-80.10.

USD/JPY traded in the range of 108.77-111.06. The stronger than expected mandate for Koizumi, strengthened Yen initially . But lack of momentum later saw dollar coming back.

In the ensuing fortnight, we expect USD/JPY to find its resistance levels at 111.90 (daily trend line-top) and will attempt to test the support levels at 108.75

Against INR, JPY would trade in a range of 39.20-40.30

Other News Items

The Government has done away with the need to get FIPB clearance for conversion of NRI investment through a rupee account into repatriable equity.

Earlier, NRI investments in foreign exchange on non repatriable basis were allowed to be made fully repatriable through the automatic route, whereas investment in rupees through rupee account could be repatriated only with FIPB nod.

The liberalization of repatriation norms, however, would be subject to the condition that the original NRI investment was in foreign exchange under the FDI scheme 2000 and the new policy would not supercede sectoral FDI regulations.

This decision to make NRIs’ rupee investments freely repatriable would substantially reduce the mandate of FIPB. Of an average of around 80 proposals that come to the FIPB every month for clearance, barring half a dozen or so, all concern repatriation / transfer of NRI equity. The comfortable forex reserves position - Usd 143 billion - has presumably allowed the government greater leeway in repatriation policy.

Courtesy: Financial Express

Natural rubber exports have picked up in the current year with the total exports touching 10,900 tonnes during the period between April to September this year.

Fresh export orders received by different agencies suggest that the country would be able to surpass the natural rubber export target of 40,000 tonnes set for the current year. While Rubbermark has reportedly received an export order of around 15,000 tonnes of natural rubber, the JV between Mardec R K Latex and Cargill would export another 10,000 tonnes this year.

The export trend in the first three months was disappointing at 1,280 tonnes as higher domestic prices affected rubber export prospects. In the following month also, there were fewer contracts mainly because the markets were volatile and exporters did not want to end up buying at a higher price after making a commitment. Exports picked up subsequently in August and September mainly because of the rise in international price of natural rubber.
Source: The Economic Times

The forex earnings of 500 major corporates increased by 47.49 % to Rs 1,37,662 crore during 2004 - 05 from Rs 93,336 Crore in 2003 - 04. The export to sales ratio of these companies also increased from 13.83 % to 16.51 % during the same period, indicating a better export performance of major companies in relation to sales.

44 % of the 500 companies exported more than 20 % of their sales during 2004 - 05. There was more than 100 % growth in exports of 71 companies including Reliance Industries, Adani Exports, Essar Steel, Bhushan Steel and Usha Martin. The maximum growth in foreign exchange can be seen in the case of Bhusan steel followed by Adani Exports.

Sectorwise, steel had the maximum growth (148.8 %) while aluminium (102.3 %) and jems & jewellery (59.4 %) also witnessed significant gains.

On the other hand, the total foreign exchange expenditure, including imports was Rs 2,30,549 crore against Rs 1,51,779 crore in the previous year, an increase of 51.9 %. The net foreign exchange earnings growth was negative during 2003 - 04 ( Rs 58, 443 crore) and 2004-05 ( Rs 92,886 crore).

China, has remarkably, surpassed US as the primary source of Indian imports. Recent trends in India’s imports reveal that, on an average, imports from China have grown at nearly double the rate of India’s imports from the US during the period 2001 - 2005. While 2004 - 05 ended with India’s imports from China being at par with the US, provisional figures for April - May this year show that imports from China exceeded imports from US.

While China continues to reign supreme in India’s imports of organic chemicals, toys, games, silk, furniture and mineral fuel, the country has recently emerged as one of the largest suppliers of nuclear reactors, boilers, machinery and mechanical appliances to India.

An analysis of the major commodities imported from China over the years shows that in a number of products, China has surpassed the traditional suppliers to India. For instance, in electrical machinery and equipment, imports from China outstripped those from the US, Korea and Germany that were once the key suppliers. Even in the case of mineral fuels, mineral oil and products, China had clearly overtaken Saudi Arabia to become the second largest supplier to India, after Australia during April - December 2004 - 05 compared with last year.

China’s economy is heavily dependent on exports as this constitutes nearly 36 % of the country’s GDP. With growing imports from China, India has come to play an increasingly important role in fuelling China’s economy. China’s trade figures show that India has become the seventeenth largest destination, for its exports, surpassing Thailand and Belgium in recent months.

Overall, the balance of trade is evidently in favour of China. However, the double digit growth in exports to China compared to a relatively slow pace in the growth of exports to US will lead to China surpassing US as India’s largest destination for exports by 2007 - 08.

FCNRD(w.e.f. 03.09.2005)						NRE(w.e.f. 03.09.2005)
PERIOD	USD	GBP	EUR	CAD	AUD	NRE
1 Year & above but less than 2 years	3.99	4.24	1.99	2.97	5.33	4.75
2 Years & above but less than 3 years	3.99	4.16	2.12	2.94	5.22	4.75
3 Years & above but less than 4 years	4.01	4.16	2.25	3.04	5.18	4.80
4 Years & above but less than 5 years	4.04	4.17	2.37	3.15	5.22	4.80
5 years only	4.06	4.18	2.49	3.29	5.23	4.80
SB NRE (w.e.f.01.07.2005) 3.70

 

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