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Forex
Forex

Forex (522)

Wednesday, 08 April 2015 03:56

India to release GDP and Fiscal deficit data

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Today India will release GDP data for the quarter ended 30 September after market hours and Fiscal Deficit data for October at 1030 GMT.

Indian economy is likely to expand by 5.1% in the third quarter but the reading is lesser than second quarter growth of 5.7%. If the growth rate exceeds the expectations of analysts then we may see good appreciation in currency and further foreign fund inflow. Fiscal deficit has come down compare to last reading but overall it has remained high in this year. Dual deficit may become harmful for economic growth.

The third largest economy of Asia has performed well in this year. The growth rate jumped near to two year high in last quarter. Government reforms and their business friendly approach have rejuvenated industries. Consumer confidence has also strengthened in last month compare to earlier. Market players are expecting better economic growth in coming months looking at political and financial market condition.

If the growth rate increases for the last quarter then it may provide support to RBI to not to cut interest rate in Dec meet but weak data may increase pressure on the Central Bank for rate cut.

Industrialists are waiting for reforms as it has been affecting their businesses. Changes in government policy will make many businesses live. Bills like Insurance, land acquisition, coal etc is expected to get resolved in this winter session of parliament.

In near time rupee is expected to remain in the range of 61.70 to 62.30. Next week movement will remain depended on GDP data and RBI decision on interest rate.

 

Rupee opened low today at 62.2425 after surprising RBI announcement on removal of gold import restriction last week. RBI removed 80:20 rule that may lead to heavy import from major gold trading houses.

To reduce distortion of gold trades the Central Bank removed 80:20 restriction that weakened rupee to 9 month low. On the other side equity indices are continuously gaining mainly on expectation of interest rate cut by RBI in tomorrows meet. NIFTY gained by 0.13% to 8566 and Sensex advanced 0.10% to 28723.

Indian Bonds also gained as investors are expecting rate cut after slow GDP and low inflation. OPEC decision to continue oil production may also cushion RBI to take decision to lower benchmark interest rate.

RBIs stance on Gold restriction may not continue if trade gap widens. At present lower oil prices has supported to narrow trade deficit.

Rupee may depreciate gradually in coming days as the domestic currency is performing comparatively better than other emerging market currencies. Too strong performance of rupee against its peers may make it less competitive for exports. High imports and low earnings on exports may harm trade balance. Intervention of Central Bank has also kept rupee in range and has not let it move freely with change in interest rate and inflation differential.

To not to depreciate rupee heavily central bank may buy dollar from the market periodically or may make changes in interest policy. Change in policy will have negative impact on currency for short time but for long term perspective it is beneficial as it will boost economic growth. At present majority are not expecting any change in interest rate but there is still room for interest rate cut.

Pending decisions on insurance bill, land acquisition and coal could also have significant impact on economy.

 

Monday, 06 April 2015 09:22

Global Market Updates

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Currency Market:

>INR closed high as RBI keeps interest rate unchanged. The currency touched 9 month low yesterday due to removal of gold import restrictions. Yesterday Government auctioned debt quota for FII that appreciated rupee. RBI is likely to cut interest rate in next meet in Feb after looking at inflationary pressure and deficit control. The Central Bank has set growth rate of 5.5% for this quarter and has set inflation target of 8% for 2015 and 6% for 2016.

>Yen falls to seven year low against dollar as rating agency Moodys downgraded sovereign bond rating by one notch to A1. The currency fell to 119.0 after opening on 118.39. Yen has been falling since the surprising change in BOJ stimulus and then after postponed sales tax hike by Prime Minister Abe following weak GDP data.

>Euro weakened against dollar by 0.18% to 1.2447. No change in Euro Manufacturing PMI on Monday and five year low inflation reading of 0.3% on last week depreciated Euro against dollar. Traders seem bearish on Euro before ECB meeting on 4th Dec. Spanish Manufacturing PMI and Unemployment has improved while Italian Manufacturing PMI has continued contraction for last month.

>GBP gained yesterday on better than expected Manufacturing PMI but todays fall in Construction PMI by 2 points to 59.4 erased earlier gains. The currency pair GBP/USD fell by 0.24% to 1.5695 at international market.

>AUD falls as RBA keeps interest rate unchanged at record low level at 2.5%. The currency gained to 0.8543 after the rate announcement but retreated later. Building approval reported unexpected hike of 11.4% against last -11.2%. Trade deficit also narrowed to $12.5b from last $13.9b.

Commodity Market:

>WTI Crude oil prices remain below $70 as abundant supply remains continue. Both Brent and WTI touched five year low yesterday due to huge fresh supply of light weight oil from North America. WTI trades near to $67.92 a dollar. Market is expecting crude oil to trade at sustainable range like $70-$80 a barrel.

>Gold prices fell below $1200 after the precious metal rally to $1218 an ounce on speculative buying. Little gain in oil prices and weakness in dollar index spurred gold buying at international market yesterday. Silver prices also fell by 0.52% to $16.16 an ounce.

>Copper prices fell yesterday as China Manufacturing PMI fell by 0.5 points to 50.3 in November. HSBC Final Manufacturing PMI also reported weakness in manufacturing industry as the index remained unchanged at level 50.0. Below 50 the industry may fall in contraction. Copper for March delivery fell to four and half year low at $2.765 a pound yesterday and recovered to $2.86. Today the metal traded within the range of $2.85 to $2.91. Weakness in copper prices may continue as industrial demand at China, worlds largest metal consumer is declining and global growth is waning.

 

Monday, 06 April 2015 08:54

FII flow and Dollar strength keep rupee in range

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Rupee opens high at 61.81 against previous close of 61.93 and trading within the same range of 61.70 to 62.0 as increasing inflow in domestic market has offset the effect of strong dollar.

According to exchange report yesterday, foreign investors bought 4.74billion rupees of local stock while domestic investors sold stock of 5.86b rupees. Also in debt market, foreign investors increased holding of rupee denominated debt by $290.9m to $49.9b on Dec. 2.

Today government has planned to sale 5% stake of SAIL (Steel Authority of India Ltd.) or 206.5m shares at the floor price of Rs.83 as it has decided to go for divestment plan of 58000crore during this fiscal. Sale of five percent stake may cash in Rs.1740crore, looking at current market price.

On the other side dollar has strengthened after Service PMI reported better than expected growth for Nov. Institute of Supply Management posted improvement in Service Industry by 2.2 points to 59.3 against last reading of 57.1. ADP report on employment has also come positive as jobs in November increased by 208k. Government will release Non-Farm Employment data today which is expected to improve further. Solid job growth may further strengthen U.S. dollar.

Dollar index which measures the performance of dollar against six major currencies rose by 0.04% to 88.69 as Yen weakens near to 120 a dollar.

 

Monday, 06 April 2015 08:33

Rupee this week

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Rupee opened a bit low at 61.93 after last week closing of 61.78 as U.S. non-farm employment changed more than expected.

The currency remained in range of 61.90 to 62.0 in morning trading hours. Compare to INR, other emerging market currencies have depreciated more against dollar. Dollar index that measures the performance of dollar against six major currencies reached near to five year high at 89.46 on Friday but little changed today to 89.36.Dollar is trading at seven year high against Yen at 121.45 and against EUR it advanced to 1.2281 today.

This week we may see INR movement within the same range of 61.80 to 62.20. Upcoming U.S. economic data of Retail Sales, Core Retail Sales and Consumer Sentiment are expected remain either unchanged or slightly positive. On Thursday ECB is to hold second round of TLTRO that may weaken EUR and indirectly rupee as well. ECB president Draghi disappointed market by not announcing quantitative easing in last meet and waited for the next round to turn the final card.

Coming election at Japan on Dec14 may further weaken yen as chances of winning of present P.M. Abe is high. To retain the hold over the introduced economic reforms the P.M. announced snap election last month. Strengthening of dollar against yen may also weaken INR next week.

On Friday India is to release CPI, Industrial production and Manufacturing Output data after market hours. Both CPI and Industrial Production are expected to show bit negative reading this time. We may see its impact on currency in next week.

There seems upside pressure near to the level of 62.0-61.98/99 not letting the currency to depreciate further. We may not see major movement in rupee due to economic data release in this week and expecting it to trade within prescribed range.

 

Rupee crossed 62 level after a week as global equity markets tumbled after heavy fall in Greek equity market and Fitch Places Japan's 'A+' IDRs on Rating Watch Negative.

Rupee regained to 61.78 on last Friday as Govt sold 5% stake of Steel Authority of Indi Ltd (SAIL). The appreciation continued in INR on last two days as well even after better than expected reading of U.S. non-farm payroll. Dollar strengthened against major currencies after strong job data and reached near to four year high but INR did not depreciate much compare to its peers.

There was observed strong resistance or we can say selling near to 62.0 level but today the level is breached. Rupee made the high of 62.0488 after opening on 61.96. Now, lets look into the details.

Greek market fell more than 10% after the Government announcement to hold presidential election as early as on Dec 17 which was earlier scheduled in March. At present the Syriza party is leading early polls and expected to win. This party is against the IMF bailout program that might put the economy in disastrous condition and the market reaction was very clear.

Yesterday Fitch Places Japan's 'A+' IDRs on Rating Watch Negative (RWN) which has also caused anxiety in the market. The issue ratings on Japan's unsecured foreign and local currency bonds have also been placed on RWN, as has the sovereign's Short-term IDR of 'F1+. The rating agency has cited points of controlling fiscal deficit and managing debt to GDP ratio in the report.

China market also traded negative Tuesday tracking global markets. The Shanghai Composite Index closed down by 5.4% to 2856.27 points. Wall Street remained in loss on falling oil prices and dampening global market outlook. Thats why Indian markets closed negative by more than 1% yesterday.

Rupee may gain strength after the govt pass awaited bills in this winter session of parliament. Earlier the Govt decided to pass the Insurance bill by 12th Dec but it has extended dead line till next week. Industrialists are also waiting for the clearance of coal, power, infrastructure etc. bills. Govt is also expected to sale stake of ONGC, NHPC, Coal India and other public companies before the end of this fiscal year to achieve the budget deficit target of 4.5% of GDP. In coming weeks this may support INR. But the rupee range is expected to remain skewed towards depreciation.

We may see rupee within the range of 61.80 to 62.20 in near term looking at the present market scenario.

Monday, 06 April 2015 06:55

Rupee remains above 62 level on second day

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Rupee opens high on 62.17 after yesterday close of 62.03. The currency continues depreciation on the second day as Global Stock indices fell after OPEC reduced estimate of demand in 2015 and Kuwait offers discounts to its Asian buyers.

After Saudi Arabia and Iraq it is Kuwait who offered discount to its Asian Buyers. It seems like these countries are defending their market share by selling oil at cheaper prices. Iran may also reduce oil prices if the solidity does not remain among OPEC members. Brent prices fell below $65 a barrel, lowest since 2009 and WTI near to $61.4 after touching five and half year low at $60.4/bbl on Wednesday. Yesterday data of U.S. oil inventory reported fall in demand at worlds largest oil consuming country.

After the OPEC forecast U.S. stocks collapsed and its effect spread across Asian markets. Yesterday S&P fell to the lowest level since October. Nikkei fell 1%, Shanghai Composite lost 0.3% and BSE Sensex fell 1.01% today.

Dollar index fell to 88.28 from yesterday level of 89.36 as Yen and EUR gained. Demand of Japanese currency and Bond increased as safe investment after weakness in U.S. market.

Fall in oil prices is good for India Trade Deficit and if lower prices sustained we may see its good result in coming months. At present falling Oil prices has started sell off in oil companies and this pace may slow after oil prices stabilize.

Overvaluation of INR is another reason behind its gradual depreciation. To keep rupee competitive it is necessary to let it flow according to market fundamentals. RBI may not intervene when it is actual time for currency depreciation.

In short run due to oil prices and geopolitical problems we are witnessing somewhat volatile movement that we have not seen since last year but improvement in fundamentals and upcoming reforms may revive the economic growth in long run.

Looking at present market scenario we may see rupee within the range of 61.80 to 62.30. If the currency makes new low above 62.30 then we may see further depreciation.

India is to release CPI and Industrial Production data tomorrow that will remain in watch and next week FOMC meet will remain crucial.

 

Monday, 06 April 2015 06:23

Trend in Emerging Markets' Currency in Dec

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Rupee continues depreciation on third session this week. Today the currency opens at 62.42 after yesterday close at 62.34.

It is found that all emerging market currencies have depreciated against dollar in this week. Rupee is following the same trend. The currency depreciated on Wednesday as Greek market fell more than 10% after the Government announcement to hold presidential election as early as on Dec 17 and Fitch Places Japan's 'A+' IDRs on Rating Watch Negative (RWN).

Rupee weakened on Thursday up to 62.35 as OPEC estimated fall in oil demand in 2015 which tumbled global stock market especially U.S stocks. Price war between oil producers is hurting some energy businesses in U.S. which are having high cost of oil exploration.

Today, weakness in INR remained constant without any major event at global market that raises some other possibilities. Is it oil buyers depreciating currency to 9 month low or it is FII selling in equity market?

Lets check both possibilities.

There could be possible buying of oil importers near to 62 level but it would be unreasonable to expect importers' demand at depreciated level. Yes, panic in the market could have led rupee near to 62.50 but then it should have appreciated quickly from this level after the end of buying but that has not happened.

If we look at last few days FII outflow from equity market then it shows that foreign investors have sold 2.2b rupees stocks on Tuesday and 8.08b rupees stock on Wednesday. Fundamentally economy is performing well and according to RBI Dec monthly report the economy is expected to grow by 5.5% in 2014-15 and by 6.5% in 2015-16. Inflation expectations for medium and longer term have moderated in the recent period. Today also we are watching loss in securities having high Foreign Investment.

If we look at historical records then in last five years it has been observed that rupee has depreciated in Dec. It could be due to investors withdrawal before festival season. Below mentioned is the rupee movement in Dec.

Year

Dates

Low (on the starting date)

High(on the ending date)

2010

7th Dec to 20th Dec

44.65

45.65

2011

2nd Dec to 15th Dec

51.19

54.30

2012

6th Dec to 21st Dec

54.04

54.99

2013

9th Dec to 20th Dec

60.84

62.45

2014

5th Dec to Till Date

61.7712

62.5057

We can observe the depreciation trend here in rupee till the end of third week in Dec. Then-after there was seen gradual appreciation in rupee in all these years. We may see repetition of the same trend in this month too. We may see rupee again in the range of 61.90 to 62.10 in coming week.

Not only in rupee but if we ignore some exceptions then the same depreciation was also seen in other emerging market currencies. Russian Ruble, Brazilian Lira, African Rand and Indonesian Rupiah have also depreciated in Dec against dollar. Mainly it could be due to FIIs withdrawal for short term but the appreciation comes as they resume in the markets.

Here is the Emerging Market Currencies trend in Dec.

Indonesian Rupiah

Year

Dates

Low (On the starting date)

High (On the ending date)

2010

76h Dec to 22nd Dec

8988

9055

2011

8th Dec to 29th Dec

9000

9218

2012

3rd Dec to 26th Dec

9595

9811

2013

2nd Dec to 30th Dec

11705

12276

2014

1st Dec to Till Date

12235

12453

Russian Ruble

Year

Dates

Low(On the starting date)

High (On the ending date)

2010

Appreciation in Currency

2011

2nd Dec to 20th Dec

30.46

32.17

2012

13th Dec to 17th Dec

30.49

31.03

2013

10th Dec to 20th Dec

32.62

33.03

2014

28th Nov to Till Date

48.80

55.80

*The currency depreciated for only short time in 2012 and appreciated in Dec 2010.

Brazilian Lira

Year

Dates

Low(On the starting date)

High (On the ending date)

2010

7th Dec to 17th Dec

1.6685

1.7180

2011

5th Dec to 14th Dec

1.7758

1.8848

2012

13th Dec to 17th Dec

30.49

31.03

2013

10th Dec to 20th Dec

32.62

33.03

2014

28th Nov to Till Date

48.80

55.80

*The currency depreciated for only short time in 2012.

African Rand

Year

Dates

Low (On the starting date)

High (On the ending date)

2010

3rd Dec to 8th Dec

6.84

6.98

2011

7th Dec to 15th Dec

7.95

8.45

2012

19th Dec to 25th Dec

8.43

8.61

2013

2nd Dec to 6th Dec

10.12

10.58

2014

2nd Dec to 11th Dec

10.96

11.65

*The currency depreciated for only few days in 2010 and 2013.

We may see correction in rupee in near time. Today India is expected to release CPI and Industrial Production data. Stronger than expected reading may support rupee.

 

Rupee falls to 13 months low in last three trading sessions as economic fundamentals weakened and global growth falters.

Today the Indian rupee fell to 63.88, continues depreciation after weaker than expected economic fundamentals. FOMC statement and its market expectation is also playing crucial role here.

On Friday after market hours India released Industrial Production and CPI data. Industrial Production fell 4.2% from earlier 2.5%. Diwali holidays in October could have affected the data thats what we can assume. CPI came to 4.38% from earlier 5.52%, fall in inflation is more due to base effect and falling oil prices. On the same day because of negative IP the currency fell in NDF market.

Then-after India trade balance reported widening trade deficit as imports increased by 26.8% while exports increased only by 7.2%. Wide trade gap was also one of the reasons behind last year drastic fall in rupee.

Weakening fundamentals, expectation of lower global growth and improving U.S. economy has started some sell off in equity and bond market. We are observing downside movement in securities having heavy investment of foreign investors. There is also sell-off in debt market that increased Bond yields to 7.99%.

Today we may get hints of Feds view on interest rate. Earlier the committee had decided to keep interest rate unchanged for extended period of time even after positive data. The anxiety in the market may end to certain extent after the statement release. It could be possible that we may see wide gap opening tomorrow in some currencies and commodities.

If the weakness in rupee continues then we may see rate cut by RBI later than what we are expecting. The central bank may not intervene in the market if the currency remains within the broad range of 61-63 but it may enter into the market if volatility increases.

Rupee has remained strong against dollar compare to other emerging market currencies. Depreciation in rupee was expected but not this sooner. Feds comment on interest rate hike and its economic projections will remain in watch. If Fed does not change its tone then we may see appreciation in currency market but hawkish tone may do the exact opposite.

 

Rupee appreciates as FOMC is patient in changing its monetary policy stance.

Rupee opens high on 63.35 against yesterday closing of 63.62 as FOMC is patient in beginning to normalize the stance of monetary policy and sees this statement consistent with its earlier guidance to keep interest rate unchanged for considerable time.

The committee cited further improvement in labor market and expecting inflation to rise gradually towards 2% as labor market improves further Although there was no change in last lines saying that the Fed will keep interest rate below normal level in the long run even after employment and inflation are near mandate consistent level.

Market Players may wait for further improvement in labor market and inflation to see changes in Fed views on interest rate.

Dow 30 closed positive by 1.69% to 17356 after Feds comment. At domestic market Nifty and Sensex gained by 0.69% and 0.77% to 8085 and 26917. Other emerging Asian markets are also trading positive. Among emerging market currencies Indonesian Rupiah and Indian Rupee are appreciating while others are weakening against dollar.

In last five years trend it is observed that rupee depreciates till the last week of December and then after the trend reverses. The currency depreciation is more and earlier than expected. The effect of weak industrial production and trade deficit may weaken with fresh data release and government actions. Improvement in fundamentals, high inflow of FII in debt and equity market (1,97,716 crore till date-all time high), Govt sale of its stake holdings and upcoming reforms may support rupee in long run.

We may not see further heavy depreciation in rupee in near time and there may remain appreciation bias.