(Fortnightly)

Currency Outlook

Large scale buying by oil companies and short covering by banks over the past few days pushed dollar higher from lows around 44.93. It traded in a broad 44.93 - 45.16 range recently. With global oil prices remaining firm, the government might be forced to go in for a price hike on petroleum products, pushing up the inflation. This, along with the fact that the stock market is still in bearish mode might give the dollar a further push up. Resistance comes in at 45.45 and support at 44.95. Expect the rupee to trade within this range.

Rupee forwards have moved into premia from prolonged periods of discount. Six month forwards closed at 0.59%. Expect it to trade between 0.25% and 1% over the next fortnight.

With interest rates in US expected to rise shortly, Euro was not able to hold on to its gains of the last few weeks. Sellers emerged pushing the currency from 1.2375 to 1.1970. As long as 1.2375 caps the upside, we expect euro to move lower to test 1.1790 initially, and 1.1500 later on.

Against Indian Rupee, euro is expected to trade between 52.80 and 56.00 with a bias to the downside.

Bank of England raised UK interest rates for the second month in succession by 25 basis points to 4.50%. The market having already discounted the news, sent the sterling lower. As long as sterling stays below 1.8490, we might see further moves down targeting 1.7800. Long term, sterling is expected to target 1.9150 after this downmove.

Against Indian Rupee, sterling is expected to move between 81.00 and 82.80, with a bias to the downside.

Initial support comes in at 109.15, and next one at 108. As long as this latter level holds, we can see dollar traded upto 111.15.

Against Indian Rupee, Japanese Yen is expected to stay between 39.00 and 42.30.

Export of readymade garments to US during the period January - April, 2004 has come down by 2.39% in volume and 6% in value terms in comparison with the corresponding period in 2003. Over the same period, exports to European Union has shown a modest increase of 1.48% in volume, and 16.83% in value terms. The recent appreciation of rupee vis-a-vis US Dollar is cited as the reason for decline in exports. - Business Line dt. 31.05.04

Reserve Bank of India has hiked the limit by four times to USD 100,000 for trade related loan by exporter from their Exchange Earners' Foreign Currency(EEFC) account to the overseas importer customers without seeking bank guarantees. For amounts in excess of USD 100,000, a bank guarantee abroad would have to be provided by the overseas borrower. - PTI/Reuters dt. 08.06.04

India's largest diary products maker Gujarat Co-operative Milk Marketing Federation is aiming to replace 15000 - 20000 tonnes of skimmed milk powder presently imported by Pakistan with cheaper fresh milk from India, now that relations between the neighbours have improved. This will lead to increase in export of more farm products as Pakistan opens up its market to India. - Reuters dt. 11.06.04

Knitwear exports from Tiruppur are surging, and are expected to touch USD 1 billion this year. European Union has come up with a proposal to increase the quota limit for India, and if the same is accepted by the Government, Tiruppur will reach its landmark. - Businessline Dt.04.05.04

The Group of Eight industrialized nations are considering opening the doors of the elite club to India and China, to reflect the growing importance of the two Asian economic giants. Reuters Dt. 11.06.04