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

MARKET OUTLOOK FOR THE NEXT FORTNIGHT

(16/12/06 - 31/12/06)

Rupee moved in a range, more influenced by support from PSU Banks, presumably on behalf of the Central Bank. It got struck in the range of 44.46 and 44.95 during the fortnight. A break on either side will pave way for further directions. Central Bank managed to contain any drastic change in the value of rupee due to the CRR hike. However, the forward dollars rallied strongly with the 6 months forward rupee losing more than twenty paise on the CRR move.

Forward dollars still look very bullish and spot rupee is expected to maintain a range of 44.50 and 45.10 during the coming fortnight.

However, as the Christmas and New Year holidays nearing, the global market is expected to remain lackluster and will have its effect on INR too. The US PPI figure will be a major data to watch, which will have major effect on the global dollar strength that will eventually be reflected in INR.

Selling pressure continued through out the last fortnight between a high of 1.3253 and a low of 1.3057. Fairly strong retail sales data supported the dollar and the data to be watched during the coming fortnight is the German IFO index. A failed attempt to breach 4th December high of 1.3370 on 8th December got the pair gather some bearish momentum. However, the whole move down looks corrective and lacks the momentum to pull back beyond 1.2980. 1.2980/3000 area is expected to be a strong support for a rally again back to 1.3300 during the forthcoming fortnight.

EUR/INR is expected to stay in the range of 57.60 and 59.20

This pair moved in tandem with the EUR and we saw the pair weakening from 1.9777 to 1.9466. Here too, the move down looks corrective in nature and 1.9300 might prove to be a strong support for a rally back above 1.9600. All the data that have come out of this region have been good, but the trading remained mixed due to its relative strength against EUR, CHF, AUD, NZD and CAD. MPC minutes will be watched closely during the coming fortnight. Prefer to stay on the short side initially for a break below 1.9466 and turn long close to 1.9300 area, where the correction is expected to be get over, for a move targeting 1.9731.

GBP/INR is expected to trade a range of 86.00 and 88.00

The global dollar strength had its effect on this pair too and dollar moved from the lows of 114.42 to 118.38 during the week. Strong Tankan report did not have major effect on the pair and dollar kept rising through out the fortnight. Expectations for rate rise should have provided some support, but the lack luster economic data's that have been seen recently, tampers the rate hike potential and the same was witnessed all through the fortnight. In the ensuing fortnight 116.38, 50% fibo retracement, may prove to be a very strong support for a further move up.

JPY/INR is expected to trade a range of 38.40 and 37.00

 

Other News Items

The Indian economy has continued to post robust growth figures with the Central Statistical Organisation (CSO) reporting 9.2 per cent growth in July-Septembeer 2006. This was mainly on the strength of the performance of the manufacturing and services sector. The growth rate in the corresponding quarter last year was 8.4 per cent while the 2006-07 first quarter growth was put at 8.9 per cent.

On the basis of two consecutive good performances, the economy's first half growth in the current fiscal touched 9.1 per cent compared with 8.5 per cent in the corresponding period last year.

Asserting that the GDP growth achievements in the current fiscal are not an accident, the Finance Minsiter highlighted that all sectors, other than agriculture and mining, have done better in the second quarter than their first quarter performance. He concurred with the Reserve Bank of India stance that it would be premature and wrong to say that the economy was "overheating".

(Courtesy: The Businessline)

Global credit rating agency Standard & Poor's in its "Asia-Pacific Markets Outlook 2007" report has recommended "under-weighting Indian and Japanese equity markets and over-weighting South Korea, Taiwan and China in 2007."

Further, the agency expects economic growth in Asia Pacific to exceed most other regions in 2007. A growth recovery in Japan, continuing momentum in China and India coupled with growing intra-regional trade, are expected to offset the impact of a slowdown in the US.

Higher financing costs, increased corporate borrowing and a frenzy of M&As (mergers and acquisitions) will fuel volatility in the Asia-Pacific financial markets adding to the risks faced by investors, according to a report released today by S&P. However, the markets are expected to remain generally strong in 2007.

"Although the trend is still broadly positive for the year ahead, there will be some negative credit stories too," said Mr Ian Thompson, Chief Criteria Officer for Standard & Poor's Ratings Services in Asia Pacific. Ms Lorraine Tan, Vice-President at Standard & Poor's Equity Research in Asia Pacific, said, "Corporate earnings should be supported by strong domestic consumption, but tighter liquidity will have a dampening effect on regional stock markets."

(Courtesy: The Businessline)

RBI ups CRR by 0.5% to check inflation:

RBI announced a 50 basis point hike in the cash reserve ratio (CRR) from 5 to 5.50% in two phases. This measure is expected to absorb Rs: 13,500 crores from the banking system. RBI had last raised the late in 2004 when inflation had gone up. A very high level of credit growth and rise in money supply appear to have been the cause of concern.

(Courtesy: The Economic Times )

FCNRD(w.e.f. 01.12.2006)						NRE(w.e.f. 01.12.2006)
PERIOD	USD	GBP	EUR	CAD	AUD	NRE
1 Year & above but less than 2 years	5.24	5.43	3.86	4.18	6.54	6.24
2 Years & above but less than 3 years	5.00	5.36	3.91	4.07	6.39	6.00
3 Years & above but less than 4 years	4.91	5.32	3.89	4.06	6.34	5.91
4 Years & above but less than 5 years	4.89	5.28	3.88	4.07	6.35	5.91
5 years only	4.90	5.22	3.88	4.09	6.31	5.91
SB NRE - 3.50 % at par with domestic savings deposit

 

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