INDIAN BANK, HO:International Division

(Fortnightly)

Currency Outlook

US Dollar traded between 46.13 and 46.53 during the past fortnight. U.S. economic data released during the past fortnight show mixed signals with a bias towards weaker dollar. Although the higher oil prices and high inflation figures are negative factors to the rupee, the rupee might stand on a firm footing to touch 46.00 level in the ensuing week. Expect the rupee to consolidate between 46.00 to 46.50 in the ensuing fortnight.
Forward premia was rangebound and moved higher on tight money market conditions. Expect the forwards to come down in the ensuing fortnight to get supported at 2.50%. Expect the premia to move in the range of 2.50 to 2.90% in the upcoming fortnight.

Euro traded consistently lower for most part of the fortnight on rate hike of 25 bps by the FED. However the widening of US trade gap released on 13/8/04 cast a bearish trend for the USD. Euro broke through the major resistance zone of 1.2320 and looking for 1.2500 in the ensuing week with the ultimate objective of 1.2925 on the anvil.
Against Indian Rupee, euro is expected to trade between 56.00 and 57.80.

Like the EUR the Pound also traded lower for most of the past fortnight . However the latest U.S. trade gap data gave the bullish undertone to the GBP. Expect the GBP to move higher to touch 1.8500, break thereof might take it to 1.8800.
Against Indian Rupee, sterling is expected to move between 84.00 and 87.00.

Dollar/Yen expected to trend lower in the upcoming fortnight. A sell off at 112.10 level should see through the pair to 109.40 levels. Support currently comes at 109, break of which might prompt the same to 107.60 in the upcoming fortnight.
Against Indian Rupee the JPY is expected to move between 41.50 and 43.50.

Other News Items

The Govt. if planning to advance Rs.4000 Crore to textile sector this year under the Technology Upgradation Fund Scheme (TUFS). It is planning to make textile ministry a part of the mechanism for disbursal of loans under TUFS. To increase the flow of funds, the ministry is thinking of a mechanism where a textile ministry representative can sit on the loan sanction committee. (Source - Fin. Express - dt. 11/8/2004).

A few years back, the Indian industry was worried about a deluge of Chinese goods making way into the country. Now the Chinese industry has expressed concerns about the growing trade imbalance between the two countries. India had a trade balance of over $900 million in its favour in 2003. The bilateral trade between the two countries has already crossed $5.45 billion in January-May compared to $2.89 billion in the corresponding period of the previous year. (Source - Fin. Exp dt.04/8/04)

The RBI had in February allowed residents to remit upto $25000 a year for any current or capital account transaction or a combination of both. The Reserve Bank of India has now told Banks to stick to plain vanilla forex deposits and refrain from offering products like mutual funds and structured notes to resident Indians.(Source-Business Line dt. 11/8/2004).

This year's national foreign trade policy might exempt exporters from a number of taxes including excise, services and education cess when it announces the Policy on August 31. The main arguement of commerce ministry Officials : since the Govt ultimately reimburses these taxes to the exporters, there is no logic behind charging them in the first place. In the proposed dispensation, while buying inputs, exporters will just have to give disclaimers to their suppliers stating that they would use the purchases for manufacturing items of export. (Fin. Express dt. 12/8/2004)

U.S. Fed has hiked interest rates by 25 bps to 1.50% in its FOMC meeting held on 10th August 2004 and indicated gradual and measured interest rate rises in the days ahead. (Source - Reuters dt.10.8.2004)

Issue 1/2004 Dt.01 06 2004
Issue 2/2004 Dt.16 06 2004
Issue 3/2004 Dt.01 07 2004
Issue 4/2004 Dt.16 07 2004
Issue 5/2004 Dt.16 07 2004