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

Currency Outlook

USD/INR opened the fortnight at 44.78 and moved higher to the levels of 45.4000 , breaching the previous high of 44.79 traded in December 2004 convincingly, due to continuous demand from FIIs on re-patriation of sale proceeds of their stocks. Later on, the supply from the Public Sector Banks reportedly on behalf of the Central Bank cooled off the market and Rupee came down to a low of 45.00. Indian companies as usual stepped up the purchases during the month end to meet import and overseas debt re-payments, which kept the greenback bid. Ultimately Rupee closed at 45.15

In the ensuing fortnight, it is expected that Rupee will try higher to the levels of 45.40/60 with a firm base at 45.00.

Forwards continued to stay soft despite firming of spot dollar. Even an increase by 25 BPs in the short term reverse repo rate (from 5 to 5.25 pct) and Short Term Fixed Repo rate (from 6 to 6.25 pct) has not stalled the soft trend in premia differences. 6 months premia has traded with a high of 0.59 pct and touched a low of 0.33 pct during the fortnight. In the ensuing fortnight, we expect 6 months forwards to play in the range of 0.60 % - 0.30 % with ‘receiving’ interest to continue.

Euro opened the last fortnight at 1.2075 and played the range of 1.1876 - 1.2174 before closing at 1.1991. The reduction in the consumer confidence level from 86.6(Sep 05) to 85 (Oct 05) went against dollar after which EURO peaked to the levels of 1.2170/75 levels. However the increase in the Q3 GDP data (3.8 pct) as against that of Q2 GDP (3.3 pct) enabled USD to trade to the levels of 1.1900/25 levels.

With FOMC and ECB meetings scheduled for the ensuing fortnight, the behaviour of EURO is expected to revolve around the outcome of rate decision meetings. However based on the chart patterns, we expect Euro to resume its South move from 1.2170 on its course towards 1.1900/800.

Against INR, EUR is expected to trade in the range of 53.55-54.95

Cable opened the fortnight at 1.7685 and traded in a range of 1.7423-1.7905. The trend in British Pounds was similar to that of EURO. Durable goods order has come down from 3.8 % (August 2005) to -2.1 % (September 2005) in US which enabled Cable to trade at the levels of 1.7900. Favourable jobless claims data (366.5 k vs. 376.5 k ) in US later in the fortnight, powered Dollar to re-gain its strength for trading towards the levels of 1.7450.

In the ensuing fortnight, Fed is likely to hike its rate from 3.75 pct to 4.00 for the 12th consecutive time which may turn the market in favour of USD at least for the near term. GBP is likely to be topped at 1.7800 levels for a test towards the levels of 1.7425/1.7265.

Against INR, we expect GBP to trade in the range of Rs.78.80-80.65

During the last fortnight, USD opened at 114.08 against JPY and traded in the range of 113.76-116.48. Every good news to USD (like increase in the PPI from 1.4 pct in August 2005 to 1.9 pct in September 2005, increase in the net capital inflows from USD 87.5 bio - August 2005 to USD 91.3 bio- September 2005) had a positive impact on USD. Any other negative news for USD detailed earlier, has not dampened the firm trend of USD against JPY. USD, thus, established an ‘one-way’ move against Dollar. On its course to 116.48, the two year high of 114.98(September 2003) has been breached.

In the ensuing fortnight, we expect USD/JPY to find its base at 114.95 and move towards the highs of 120.90 levels.

Against INR, JPY would trade in a range of 37.45-39.40

Other News Items

Leather goods from India are fast becoming international favourites beating competition from global players. According to a recent PHDCCI analysis, leather goods exports touched USD 2.3 billion during 2004-05, clocking over 6 % growth over the same period in the previous fiscal.

The industry has also found new markets in Asia, Europe and the Americas. Around 15 years back, leather goods makers primarily catered to eastern block countries. More importantly, these goods have been able to find a toehold in countries like Croatia, Slovakia, Cyprus, Serbia, Dominican Republic and so on where they had no presence until last year.

Asean countries, too, have emerged as one of the largest importers of Indian finished leather goods, with Vietnam alone importing goods worth USD 23 million during fiscal 2004-05.

Malaysia witnessed 57 % growth over the same period last year in leather imports from India, which stood at USD 15.6 million. Products ranging from bags, apparel, shoes, belts, car upholstery etc are making deep inroads into China, which is fast emerging as one of the favoured destinations for Indian finished leather goods. Indian exports to China registered 43 % growth during the period April 2004 - March 2005 at USD 32.7 million. Hong-Kong was one of the largest importers with HKD 237 million. Footwear exports too registered an impressive growth of 9 % with exports worth USD 603 million.

Spain, Germany, Italy, France and USA have collectively fuelled the demand for Indian footwear as well as leather garments. United Kingdom, still remains one of the largest importer of Indian leather footwear with USD 143 million worth of imports. PHDCCI analysis also points out that overall Indian exports to Europe have tended to stagnate at 22 - 24 % growth rate.

Source: Business Standard

Booming domestic demand for silk has seen a surge in imports of silk yarn and fabrics, primarily from China, to Rs 318.97 crore in the first four months of this fiscal.

This is an increase of 82.4 % from Rs 174.92 crore a year ago. In July alone, yarn and fabric imports have nearly tripled to Rs 91.35 crore from Rs 36.99 crore in the same month last year, according to data from Directorate General of Commercial Intelligence and Statistics (DGCIS)

Trade sources said the imports of Chinese fabrics are expected to double in the current fiscal if the central government did not impose anti-dumping duty on fabrics immediately.

The alarming rise in imports of Chinese silk comes in the wake of sudden increase in domestic silk consumption and surge in exports. According to DGCIS, the country exported silk products worth Rs 883.50 crore during the period between April - July this year registering nearly 7 % year on year growth compared to Rs 830.52 crore in the corresponding period last year. In July, the silk exports climbed by 16.4 % to Rs 243.28 crore compared to Rs 209.02 crore in the same month last year.

Central Silk Board (CSB) had already initiated steps to impose anti-dumping duty on Chinese silk fabrics. CSB and other silk agencies in the country including Karnataka Silk Weavers Association (KSWA) have filed a case, which is pending for disposal before the Central government arbitrator. This is the second anti-dumping case against Chinese silk. Earlier, an anti-dumping duty was imposed on the Chinese raw silk.

According to Mr H Hanumanthappa, Chairman, CSB, the board has taken all-round efforts to bring down the imports for raw silk and fabrics from China. He said the Chinese raw silk imports declined to 2,710 tonne (Rs 218.64 crore) in the first four months of this financial year from 2,867 tonne (Rs 211.28 crore) a year ago as a result of CSB promoting bivoltine sericulture among the small farmers in the country on a large scale.

Source: Business Standard

With the gap between Indian and Vietnamese black pepper prices narrowing down over the past six months in international markets, traditional buyers of Indian black pepper like Canada, Australia, Japan and the US have again turned back to India to source the pungent spice from it.

This has helped India raise its overall black pepper exports by more than 16 % to 9, 835 tonnes in the first five months of ’05-06 compared to 9, 300 tonnes in the corresponding period last year.

Until early this year, the average ASTA-grade black pepper originating from India had been ruling at USD 1750 - 1800 per tonne in international markets. Compared to this, the same grade pepper originating from Vietnam had been ruling at USD 1300 - 1350 per tonne. The upswing in Indian prices had been mainly triggered by lower production of the spice in 2004, which declined to about 60,000 tonnes in that year.

Such a huge price differential of USD 450 a tonne between Indian pepper and that of Vietnam forced global importers to lean more on Vietnam to meet their domestic requirements even though Indian black pepper is a much sought after item in the world market for its superior quality and special flavour.

Though the tight supply has made Indian pepper costlier than the Sri Lankan varieties, the price differential with Vietnam matters most to India, which with a huge production of 115,000 tonnes, is the main competitor of India in the global pepper market.

However, with the spice production bouncing back to 70,000 tonnes in 2005, Indian pepper price started softening from February this year. The slow decline in its price has gradually brought down the price differential between Indian pepper and Vietnamese pepper to around USD 150-175 per tonne by August this year. This has again prompted India’s traditional buyers to pick up their black pepper imports from India.

On the other hand, import of the spice had gone up to 12,000 tonnes in April-August this year as against 11,350 tonnes in the corresponding period last year. Plus, there was some stock of about 25,000 tonnes from the previous year.

This has improved the total availability of the spice in the current year. As it is compulsory to re-export the entire imported pepper, a 7 % surge in import of cheap pepper from Vietnam and Sri Lanka had also played a role in raising India’s pepper exports. Like previous years, this year too bulk of the import came from Vietnam and Sri Lanka. Exporters import cheap pepper from these countries to re-export it after value-addition.

Source: Economic Times

FCNRD(w.e.f. 04.11.2005)						NRE(w.e.f. 04.11.2005)
PERIOD	USD	GBP	EUR	CAD	AUD	NRE
1 Year & above but less than 2 years	4.48	4.42	2.35	3.42	5.46	5.25
2 Years & above but less than 3 years	4.60	4.49	2.55	3.58	5.52	5.40
3 Years & above but less than 4 years	4.65	4.50	2.70	3.68	5.57	5.40
4 Years & above but less than 5 years	4.69	4.51	2.79	3.76	5.63	5.40
5 years only	4.72	4.51	2.89	3.86	5.66	5.40
SB NRE (w.e.f.01.10.2005) 4.25

 

Archives

For any clarification please contact us at ibcoid@satyammail.com