WEEKLY OUTLOOK FOR GOLD& SILVER :( 11/06/07-15/06/07)
Recap:
Metals had bounced back trying to reverse the downside trend, but in preceding week the sentiments again went in favour of DOLLAR on Thursday when ECB kept interest rate hike on hold, consequently weakening all major currencies and metals against $. Bounce back was a just an illusion of option holders and rollover buying. Metals have resumed their bearish trend and on N.Y closing sessions the game was again under bear control.
Price Outlook/ Trade Recommendations:
Gold was unbeaten to penetrate and enter the safe zone of 681 levels were the bullish trend key lees, resuming the down trend and heading the market to the lower levels of 650. Bear having the control on the game, gold is forced to play in lower level range to 638-668 in following week. Weekly close below 657 levels has kept gold strongly in bearish tone, having major resistance at 657.30 and 667.70. On lower side 647.70 and 639.70 will try to support.
Silver had given good bounce back form strong support levels of 12.940. Overall bearish sentiments have affected silver to maintain its bull run. 12.98 and 12.66 will give strong support to silver while there are many resistances on upper side at 13.235-13.488 & 62 respectively. Silver will trade in longer range of 12.660-13.660.
Tuesday, June 12, 2007
Monday, June 11, 2007
WEEKLY OUTLOOK- 11.06.07 to 15.06.07
By K Venkatraman
The sudden change of guard on the last 2 trading sessions has made odds have tilted in favor of USD. Whether this is real or made to look sort of situation has to be seen from further moves. Every time the talk on carry trade attracts attention it is a sign of majors coming under pressure against USD. We have seen in the past that the trend reverses sooner.
EUR/USD
The euro had been getting support from a bevy of central banks which were diversifying away from USD. But last weeks price action had put food for thoughts to many Cassandra. The USD bulls are back in action after the yield of the 10 year not touched a high of 5.10 %. I get a feeling that the upside appears to be capped at 1.3475 for the time being. On the other side it remains to be seen whether the strong support at 1.3330 holds and any breach of that will make the pair vulnerable for test of 1.3230. In case the euro manages to scrape though above 1.3475, then the pair is expected to re-attempt 1.3535.
Supports: 1.3330***/1.3310/1.3285/1.3230
Resistances: 1.3440*/1.3470***/1.3535**/1.3585
Expected range 1.3285-1.3475.
GBP/USD :
For the sterling the which crashed despite the BoE kept rates on hold the upside now appears to be capped at 1.9785/1.9820. The formation of an irregular H&S with neck line at 1.9820 targets 1.9475. This coincides with the breakout line extended from Q3-Q4 2006 tops. Overall I feel sentiments will remain negative and expect high volatility in the pair. EUR/GBP action requires to be watched.
Supports:1.9690**/1.9640***/1.9540**
Resistances: 1.9745**/1.9785*/1.9895
Expected to move in a range of 1.9540-1.9850.
USD/JPY :
It was calm in the Orient where reversal of carry trades and firing of missiles by N Korea had very limited impact. The pair is well supported at 120.90 and it has been facing major resistance at 122.10. Still looking bullish. Break above that will make the pair attempt 122.65 and beyond. Support at 120.50 -120.70 region is strong.
Supports:120.90*/120.50***/119.80
Resistances:122.10*/122.65**/123.20
Expected range 120.40-122.95.
USD/ CHF : 1
The pair may find good support at 1.2270. Has made a smart thrust above 1.2330-1.2355. this has also breached a major trend line. It remains to be seen as to whether this a real breakout. One more sessions close above 1.2330 will indicate that the pair is likely to attempt 1.2450; Break below 1.2215 will lead to attempt of 1.2180.
Supports:1.2270*/1.2230**/1.2180***
Resistances : 1.2370*/1.2455***/1.2520**
Expected range 1.2220-1.2450.
USD/INR :
Break above 40.90 on the last trading session has made a bout of stoploss triggers at various levels and seen 0.50 movement on single day. This move has been decisive and to changes the pattern of further moves. The pair to be treated bearish only if breaches 40.85 break above 41.20 will trigger further buying pressure up to41.44 and then 41.79. For now it appears that market is reconciling to the broader range of 40.50-41.50 Expected range 40.85-41.44.
Supports: 41.05/40.95**/40.85*/40.72*/40.52*
Resistances: 41.15*/41.22*/41.44*/41.79
XAU :
Upside appears to be capped at 662. After nearly 3 months gap the market has seen the 652 levels breaching. With USD gaining across the board the new range could be 641-663.The break of 652 makes this possible for the metal to test 641 levels and then 636 before bounce back. The earlier observation that Beginning of the month also could be a reason for a sharp up move similar to the big fall during Jan 2007 has precisely been proved correct.
Supports: 641***//636***//631/627***
Resistances: 652***/662**
XAG:
The pullback form 13.80 to 12.90 has just erased the previous up move. Break below 12.90 will open the way for test of 12.43 and then 12.34.
Supports : 13.10/12.90/12.43/12.34
Resistances: 13.48***/13.88***/13.98
EUR/USD
The euro had been getting support from a bevy of central banks which were diversifying away from USD. But last weeks price action had put food for thoughts to many Cassandra. The USD bulls are back in action after the yield of the 10 year not touched a high of 5.10 %. I get a feeling that the upside appears to be capped at 1.3475 for the time being. On the other side it remains to be seen whether the strong support at 1.3330 holds and any breach of that will make the pair vulnerable for test of 1.3230. In case the euro manages to scrape though above 1.3475, then the pair is expected to re-attempt 1.3535.
Supports: 1.3330***/1.3310/1.3285/1.3230
Resistances: 1.3440*/1.3470***/1.3535**/1.3585
Expected range 1.3285-1.3475.
GBP/USD :
For the sterling the which crashed despite the BoE kept rates on hold the upside now appears to be capped at 1.9785/1.9820. The formation of an irregular H&S with neck line at 1.9820 targets 1.9475. This coincides with the breakout line extended from Q3-Q4 2006 tops. Overall I feel sentiments will remain negative and expect high volatility in the pair. EUR/GBP action requires to be watched.
Supports:1.9690**/1.9640***/1.9540**
Resistances: 1.9745**/1.9785*/1.9895
Expected to move in a range of 1.9540-1.9850.
USD/JPY :
It was calm in the Orient where reversal of carry trades and firing of missiles by N Korea had very limited impact. The pair is well supported at 120.90 and it has been facing major resistance at 122.10. Still looking bullish. Break above that will make the pair attempt 122.65 and beyond. Support at 120.50 -120.70 region is strong.
Supports:120.90*/120.50***/119.80
Resistances:122.10*/122.65**/123.20
Expected range 120.40-122.95.
USD/ CHF : 1
The pair may find good support at 1.2270. Has made a smart thrust above 1.2330-1.2355. this has also breached a major trend line. It remains to be seen as to whether this a real breakout. One more sessions close above 1.2330 will indicate that the pair is likely to attempt 1.2450; Break below 1.2215 will lead to attempt of 1.2180.
Supports:1.2270*/1.2230**/1.2180***
Resistances : 1.2370*/1.2455***/1.2520**
Expected range 1.2220-1.2450.
USD/INR :
Break above 40.90 on the last trading session has made a bout of stoploss triggers at various levels and seen 0.50 movement on single day. This move has been decisive and to changes the pattern of further moves. The pair to be treated bearish only if breaches 40.85 break above 41.20 will trigger further buying pressure up to41.44 and then 41.79. For now it appears that market is reconciling to the broader range of 40.50-41.50 Expected range 40.85-41.44.
Supports: 41.05/40.95**/40.85*/40.72*/40.52*
Resistances: 41.15*/41.22*/41.44*/41.79
XAU :
Upside appears to be capped at 662. After nearly 3 months gap the market has seen the 652 levels breaching. With USD gaining across the board the new range could be 641-663.The break of 652 makes this possible for the metal to test 641 levels and then 636 before bounce back. The earlier observation that Beginning of the month also could be a reason for a sharp up move similar to the big fall during Jan 2007 has precisely been proved correct.
Supports: 641***//636***//631/627***
Resistances: 652***/662**
XAG:
The pullback form 13.80 to 12.90 has just erased the previous up move. Break below 12.90 will open the way for test of 12.43 and then 12.34.
Supports : 13.10/12.90/12.43/12.34
Resistances: 13.48***/13.88***/13.98
Thursday, June 7, 2007
Currency Update June 7
The euro and sterling was largely volatile between major support and resistance levels. The ECB decision to hike rates and a dovish statement was as expected and this did not shake markets. The sterling which initially went up as the rumors spread of a strong possibility of a BoE rate hike mellowed down when it hit the resistance of 1.9970. But the major action was in the antipodes where the Australian dollar hit a fresh 17-year high as data showed a surge in economic growth in the first quarter. But the RBA as expected left interest rates on hold at 6.25. But on the other side of the Tasman Sea the New Zealand central bank surprised the markets by hiking rates. On one side carry currencies like AUD and NZD was performing well, the yen was appreciating as developed market carry unwound on earnest of a major stock market collapse world wide. (Yen close NY: 121.03)
Wednesday, June 6, 2007
Currency Update 06-06-07
The euro and sterling broke the resistance at 1.3520 and 1.9940 yesterday but was unable to gain much follow through as data releases from the respective economies were softer than expected. The initial leap in these currencies was prompted by Ben Bernanke, Trichet and Fukuki giving comments on their economies for a South African Audience via satellite. Also Syria following Kuwait to unwind the dollar peg of its currencies to a basket of currencies which would certainly include the Europeans buoyed the latter. The euro and sterling closed 1.3522 and 1.9921 respectively. There were some unwinding of carry trades and this easily reflected in the USD/YEN, other yen crosses and fall in some asset markets across the globe. The yen closed at 121.33.
ECB: hike rates by 25 basis points and then give dovish comments without reference to “inflation vigilance”
BoE: We expect BoE to remain on hold tomorrow despite talk of a 50 basis point hike in the last meeting. (No statement is expected to be released)
ECB: hike rates by 25 basis points and then give dovish comments without reference to “inflation vigilance”
BoE: We expect BoE to remain on hold tomorrow despite talk of a 50 basis point hike in the last meeting. (No statement is expected to be released)
Monday, June 4, 2007
Currency Technicals
WEEKLY OUTLOOK- 04.06.07 to 06.06.07
K Venkatraman
EUR/USD
The euro despite the chance of Trichet being hawkish this week is getting into a narrow range. The pair is well supported at the 1.3400 levels from where we have seen it bouncing back on Friday. But the strength shown will be dissipating soon and it will be capped at 1.3520. A break of the 1.3520 will propel the pair for a re-attempt to the 1.3660 areas. Any negative bias will be limited to 1.3340.
Expected range for the week 1.3340-1.3525.
Supports: 1.3425/1.3390**/1.3360*/1.3340/1.3310
Resistance : 1.3470*/1.3510*/1.3535**/1.3585
GBP/USD
The pair which is one of the most volatile is ironically mellowed down in a narrow range which is very rare and this has prompted a lot of people to buy vols. We expect a range of 1.9725-1.9925. Break of this will decide the direction but with the BoE more likely to pause this week a break out is unlikely. Any break of 1.9925 will push it to the 2.0030 regions. EUR/GBP action can provide clues for any sterling moves.
Supports : GBP : 1.9725**/1.9690***/1.9640
Resistances: 1.9860**/1.9915*/2.0005*/2.0075
USD/JPY
This pair is the mostly watched pair by equity strategists. Carry traders are having a heyday and this is reflected on the charts. The reversal in the USD/JPY will be the prelude to a widely expected meltdown in worldwide equities. As predicted in our last report the pair has attempted strong resistance at 122.10. The pair looks very bullish going forward and a break above this will make the pair attempt 122.65 and beyond. Support at 120.50 -120.70 region is strong.
Expected range 121.40-122.95.
Supports: JPY : 121.70**/120.40*/121.05***
Resistances: 122.10*/122.65**/122.95
USD/CHF
The CHF has been playing second fiddle only to the yen on carry trades. The pair may find good support at 1.2180. Upside barriers at 1.2330-1.2355 are equally strong. Expected range 1.2180-1.2430. Break below 1.2215 will lead to attempt of 1.2180.
Supports : 1.2255*/1.2230**/1.2180
Resistances: 1.2330*/1.2370***/1.2430
USD/INR
From one of the most volatile currencies in the world it is now the most docile as the RBI and rest of the market participants are at loggerheads to each other. Upside is capped at 40.80. The 40.50 seems to provide good support. Expected range 40.13-40.69. May initially move to 40.69 and then reverse direction to test 40.50. Break below 40.50 will make the pair test 40.37 and then 40.10.
Supports: 40.50**/40.30*/40.37*/40.10*
Resistance: 40.65*/40.77*/40.88*/41.07
Gold Spot
The strong support at 652 held well and the Sharp move has distorted the charts. Now the range may be between 662-682.Break above that will trigger test of 692. Beginning of the month also could be a reason for a sharp up move similar to the big fall during Jan 2007. Overall range of 652-692 is what the market getting used to for the past 3-4 months.
Supports : 667*/664/669/662/651***
Resistances: 672***/679**/683***
Silver Spot
The momentum with which the market has turned has made the charts look very bullish for test of 14.14. one more session will confirm the outlook. Expected range 13.33-14.14
Supports : XAG:13.59/13.42/13.33/13.22
Resistance: 13.75*/13.88***/13.98***/14.14**
Supports : 1.2255*/1.2230**/1.2180
Resistances: 1.2330*/1.2370***/1.2430
USD/INR
From one of the most volatile currencies in the world it is now the most docile as the RBI and rest of the market participants are at loggerheads to each other. Upside is capped at 40.80. The 40.50 seems to provide good support. Expected range 40.13-40.69. May initially move to 40.69 and then reverse direction to test 40.50. Break below 40.50 will make the pair test 40.37 and then 40.10.
Supports: 40.50**/40.30*/40.37*/40.10*
Resistance: 40.65*/40.77*/40.88*/41.07
Gold Spot
The strong support at 652 held well and the Sharp move has distorted the charts. Now the range may be between 662-682.Break above that will trigger test of 692. Beginning of the month also could be a reason for a sharp up move similar to the big fall during Jan 2007. Overall range of 652-692 is what the market getting used to for the past 3-4 months.
Supports : 667*/664/669/662/651***
Resistances: 672***/679**/683***
Silver Spot
The momentum with which the market has turned has made the charts look very bullish for test of 14.14. one more session will confirm the outlook. Expected range 13.33-14.14
Supports : XAG:13.59/13.42/13.33/13.22
Resistance: 13.75*/13.88***/13.98***/14.14**
Wednesday, May 23, 2007
Gold view May 23- edited
Click image to enlarge
During May 2006 Gold saw a high of $ 732. The same way people were expecting the metal to touch those levels during this year also. However, It could not penetrate the Psychological barrier of $ 700. Now looking at the way it has taken a steep fall from 700 levels to 654 the crucial previous break out level, it appears that the earlier band of 666-696 has moved to 654-674.
The crucial level 652 is expected to hold, on breach of that level we may see 642. The break will also result in break of long term trend line at 652. and there could be a wave of selling due to stop triggers. One possibility is that it reverses from here to touch 683 again. In which case the bet is buy at 652 with a stop of & $ 3.wherein the risk reward ratio is higher.
The fact that USD is showing good strength after a long fall might see the gold test lower levels.
With no other major risk perceptions in the market Gold may move in a narrow range of 652-683. Any levels below 652 it is preferred to wait for test of 641 and then 636 to build-up fresh positions.
Technically it is likely to test 641 before a bounce back. This week will decide the direction.
During May 2006 Gold saw a high of $ 732. The same way people were expecting the metal to touch those levels during this year also. However, It could not penetrate the Psychological barrier of $ 700. Now looking at the way it has taken a steep fall from 700 levels to 654 the crucial previous break out level, it appears that the earlier band of 666-696 has moved to 654-674. The crucial level 652 is expected to hold, on breach of that level we may see 642. The break will also result in break of long term trend line at 652. and there could be a wave of selling due to stop triggers. One possibility is that it reverses from here to touch 683 again. In which case the bet is buy at 652 with a stop of & $ 3.wherein the risk reward ratio is higher.
The fact that USD is showing good strength after a long fall might see the gold test lower levels.
With no other major risk perceptions in the market Gold may move in a narrow range of 652-683. Any levels below 652 it is preferred to wait for test of 641 and then 636 to build-up fresh positions.
Technically it is likely to test 641 before a bounce back. This week will decide the direction.
The Rupee- May 23
By Mathew John
Today, the dollar/rupee opened at Rs.40.55/57 and is trading steady about the same levels. There is overwhelming interest in the INR overseas as most emerging currencies are rising. The Philippine peso jumped to its highest level for nearly seven years against the dollar as stocks in Manila hit a record peak. The FT reports that other emerging currencies the Brazilian real, Indonesian rupiah and Turkish lira all hovered near multi-year highs against the dollar. As we have been telling the 40.50 levels are increasingly becoming a very important technical level a break of which can push rupee downwards. Yesterday, UBS said on CNBC that they see rupee falling to 38.50 in the near term. But Mint reports that Goldman Sacchs and Deutche bank citing risk reversal from call options pricing going in the market, a bullish in USD/INR anytime. According to us the resistance at 40.80 is the most crucial level and a break of which will open up the 41.05 levels. As of now the range of 40.50 and 40.80 is holding with an behind-the-curtains war between hedge funds and RBI.
Today, the dollar/rupee opened at Rs.40.55/57 and is trading steady about the same levels. There is overwhelming interest in the INR overseas as most emerging currencies are rising. The Philippine peso jumped to its highest level for nearly seven years against the dollar as stocks in Manila hit a record peak. The FT reports that other emerging currencies the Brazilian real, Indonesian rupiah and Turkish lira all hovered near multi-year highs against the dollar. As we have been telling the 40.50 levels are increasingly becoming a very important technical level a break of which can push rupee downwards. Yesterday, UBS said on CNBC that they see rupee falling to 38.50 in the near term. But Mint reports that Goldman Sacchs and Deutche bank citing risk reversal from call options pricing going in the market, a bullish in USD/INR anytime. According to us the resistance at 40.80 is the most crucial level and a break of which will open up the 41.05 levels. As of now the range of 40.50 and 40.80 is holding with an behind-the-curtains war between hedge funds and RBI.
Monday, May 14, 2007
when RBI lost to speculators
When RBI lost to speculators
By Mathew John
We have in our previous daily and weekly mails consistently argued that the RBI cannot maintain a stable exchange rate and at the same time control inflation with monetary policy when capital can flow into the country freely from outside. We had in other weekly reports and comments to Newswire 18 commented that the RBI continues to hold the rupee it will only loose to speculators (like the George Soros type). We had said citing the concept of reverse speculative attack which was being subject to by speculators in the NDF market.
We said, “The fire fighting exercise started with the RBI hiking interest rates firing all its policy levers. Overnight interest rates which hovered below the interest rate corridor in March flew to above 70% levels. Panic spread in the market and banks had to resort selling its dollar holdings to raise rupee funds. Then came the pile driver, when it hiked interest rate on the last day of the financial year thereby aggravating the skew in the money and the currency markets. All the good work of meticulous management of the monitory policy was undone in a period of just three weeks. This showed that the RBI just could not keep the interest rate and exchange rate steady and the flows into the economy continued unabated as they were attracted by the higher yields, a self fulfilling prophesy – exactly a “reverse speculative attack” **on rupee a scenario Economist Ila Patnaik forecasted in 2003.’
This seems to have exactly what has happened. Bloomberg report ( http://www.bloomberg.com/apps/news?pid=20601091&sid=afF60XIVRswc&refer=india ) which came out last week vindicates our stand. In this report it says that PMICO ( Pacific Investment Management Co.), the worlds largest bond fund went long of INR in the NDF* market. PIMCO chief Bill Gross is considered to be the worlds most influential financial brain after Allen Greenspan in the latter’s heydays. In the Bernanke era, Bill can be considered arguably more powerful than Ben Bernanke himself. The reports adds that PIMCO bought millions of INR derivatives to profit from interest rates in India, the world's second-fastest growing major economy. The money manager has purchased non-deliverable rupee forwards tied to the future value of the rupee as these contracts are attractive because nation's bond yields are the third-highest in Asia.
*Non-deliverable forwards involve no physical exchange of currency and are typically settled in U.S. dollars. They are a type of derivative, a contract whose value is derived from stocks, bonds, currencies or commodities or linked to specific events such as changes in interest rates or the weather.
The report says that global investors are buying derivatives to benefit from India's yields because they are restricted to owning less than 2 percent of the $250 billion local-currency government debt market. The currency gained 7.9 percent in the past three months, prompting speculation the Reserve Bank of India stopped buying dollars after a record $11.9 billion of purchases in February.
The currency has appeal as a target for the carry trade, in which fund managers borrow in nations with low interest rates to invest in assets with higher returns. A one-year forwards contract carries an implied rate of about 8.43 percent, versus a yield of less than 5 percent for U.S. one-year Treasuries. Exactly this is what we are saying for a year, rupee is now the world choice of the most favorable carry currency in developing markets.
So why did RBI leave the rupee alone?
Simply because, it played into the speculators hands. When these large funds were long INR and the RBI seems to not to care and bought massive amounts of USD to keep the rupee steady.
Now look at NDF volumes which according to well researched Mumbai International Finance Centre report says us about USD 500-750 mn ( page 56 of the IFC report). Foreign investors have got yet another reason for investing in Indian stocks as the rising rupee has multiplied their returns twice over what domestic investors get. The Indian stock market has given a return of 5.6% so far in the current quarter in rupee terms, while its return in US dollar terms is a whopping 12.5%. RBI would in order to keep the rupee steady had to buy huge –
amount in the domestic market plus what the FIIs are bringing. Also, the ECBs rose to about USD 4 bn in one month as higher interest rate started to bite India inc and they started talking cheaper foreign loans. This is exactly what happened in February (see graph*).
*Joshua Felman
Still the RBI daily intervention could not keep pace with the huge amounts speculators brought into the market. RBI had to throw the towel and the result is for everyone to see as rupee collapsed from 44.22 to 40.62 (see graph)
So in fact RBI presence to steady the USD/INR at any cost( cost to exporters, importers, and tax payers by cost of sterilization , borrowers due to high cost of borrowing due to easy money absorbed in the system in fact caused the highest volatility in the currency markets in about 25 years. (see graph*)
*Joshua Felman
By Mathew John
We have in our previous daily and weekly mails consistently argued that the RBI cannot maintain a stable exchange rate and at the same time control inflation with monetary policy when capital can flow into the country freely from outside. We had in other weekly reports and comments to Newswire 18 commented that the RBI continues to hold the rupee it will only loose to speculators (like the George Soros type). We had said citing the concept of reverse speculative attack which was being subject to by speculators in the NDF market.
We said, “The fire fighting exercise started with the RBI hiking interest rates firing all its policy levers. Overnight interest rates which hovered below the interest rate corridor in March flew to above 70% levels. Panic spread in the market and banks had to resort selling its dollar holdings to raise rupee funds. Then came the pile driver, when it hiked interest rate on the last day of the financial year thereby aggravating the skew in the money and the currency markets. All the good work of meticulous management of the monitory policy was undone in a period of just three weeks. This showed that the RBI just could not keep the interest rate and exchange rate steady and the flows into the economy continued unabated as they were attracted by the higher yields, a self fulfilling prophesy – exactly a “reverse speculative attack” **on rupee a scenario Economist Ila Patnaik forecasted in 2003.’
This seems to have exactly what has happened. Bloomberg report ( http://www.bloomberg.com/apps/news?pid=20601091&sid=afF60XIVRswc&refer=india ) which came out last week vindicates our stand. In this report it says that PMICO ( Pacific Investment Management Co.), the worlds largest bond fund went long of INR in the NDF* market. PIMCO chief Bill Gross is considered to be the worlds most influential financial brain after Allen Greenspan in the latter’s heydays. In the Bernanke era, Bill can be considered arguably more powerful than Ben Bernanke himself. The reports adds that PIMCO bought millions of INR derivatives to profit from interest rates in India, the world's second-fastest growing major economy. The money manager has purchased non-deliverable rupee forwards tied to the future value of the rupee as these contracts are attractive because nation's bond yields are the third-highest in Asia.
*Non-deliverable forwards involve no physical exchange of currency and are typically settled in U.S. dollars. They are a type of derivative, a contract whose value is derived from stocks, bonds, currencies or commodities or linked to specific events such as changes in interest rates or the weather.
The report says that global investors are buying derivatives to benefit from India's yields because they are restricted to owning less than 2 percent of the $250 billion local-currency government debt market. The currency gained 7.9 percent in the past three months, prompting speculation the Reserve Bank of India stopped buying dollars after a record $11.9 billion of purchases in February.
The currency has appeal as a target for the carry trade, in which fund managers borrow in nations with low interest rates to invest in assets with higher returns. A one-year forwards contract carries an implied rate of about 8.43 percent, versus a yield of less than 5 percent for U.S. one-year Treasuries. Exactly this is what we are saying for a year, rupee is now the world choice of the most favorable carry currency in developing markets.
So why did RBI leave the rupee alone?
Simply because, it played into the speculators hands. When these large funds were long INR and the RBI seems to not to care and bought massive amounts of USD to keep the rupee steady.
Now look at NDF volumes which according to well researched Mumbai International Finance Centre report says us about USD 500-750 mn ( page 56 of the IFC report). Foreign investors have got yet another reason for investing in Indian stocks as the rising rupee has multiplied their returns twice over what domestic investors get. The Indian stock market has given a return of 5.6% so far in the current quarter in rupee terms, while its return in US dollar terms is a whopping 12.5%. RBI would in order to keep the rupee steady had to buy huge –
amount in the domestic market plus what the FIIs are bringing. Also, the ECBs rose to about USD 4 bn in one month as higher interest rate started to bite India inc and they started talking cheaper foreign loans. This is exactly what happened in February (see graph*).
*Joshua Felman
Still the RBI daily intervention could not keep pace with the huge amounts speculators brought into the market. RBI had to throw the towel and the result is for everyone to see as rupee collapsed from 44.22 to 40.62 (see graph)
So in fact RBI presence to steady the USD/INR at any cost( cost to exporters, importers, and tax payers by cost of sterilization , borrowers due to high cost of borrowing due to easy money absorbed in the system in fact caused the highest volatility in the currency markets in about 25 years. (see graph*)
*Joshua Felman
Subscribe to:
Posts (Atom)