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NRIOL.COM - Forex News and Analysis |
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August 19, 2002
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Local news and views:
The rupee continued to scale new heights, closing at a new six-month high on Friday,
as exporters rushed for covers in anticipation of further appreciation in the value of the currency against the dollar . Importers preferred to remain on the sidelines, counting their profits with glee as the dollar slid from 48.64 to 48.57 during the week. State run banks were the only large buyers in the market, mopping up excess dollar supplies in a bid to contain the rise of the value of the rupee against the dollar. However, with sentiment overwhelmingly behind the rupee and the central bank not very aggressive in preventing a gradual appreciation in the value of the rupee , a move towards 48.50 during the week seems inevitable .
The 48.50 level should provide some resistance to the rupee’s march , especially if it coincides with gains by the dollar against the major currencies in the overseas market.
Currently the rupee is still undervalued by around 4 % on trade-weighted terms .
Forward premiums too declined under heavy receiving pressure, sliding from 4.68 % at the start of the week to 4.41 % by Friday. Premiums in the forward market had earlier firmed on expectations of a fed rate cut announcement after the FOMC meeting on Aug. 13.
The RBI has now allowed individual professionals also to retain 100% of their foreign exchange earnings from consulting and other services rendered to persons or bodies outside India in EEFC accounts. This will enable them to use the funds lying in their EEFC accounts for meeting overseas expenses without having to obtain prior approval of the RBI.
International news:
USD:
It was a week of consolidation and liquidation of the dollar. The hopes of Fed rate cut led to consolidation of the dollar and the fact that the rate wasn’t cut led to liquidation. The softening in the growth of aggregate demand that emerged has been prolonged in large measure by weakness in financial markets and heightened uncertainty related to problems in corporate reporting and governance.
US business inventories rose by 0.2% in June, marking a second consecutive month of growth. Business sales were upbeat, with a 0.3% increase in June compared to 0.3% decline in May. August Philadelphia Fed survey fell to -3.1 from 6.6 in July, posting the first negative reading since last December gave the stocks and the dollar a big jolt. The future activity index declined to the lowest level since August 2001 to 41.6, much lower than 50.4 in July. US July industrial production rose by 0.2% compared to a revised 0.7% growth in June and positing an increase for the seventh consecutive month.. Capacity utilization stood at 76.1%, vs. revised 76.0% in June, which is the highest rate since August 2001. US Weekly Jobless Claims rose to 388k from a previously revised 382k from 376k.. US inflation had a nominal 0.1% gain in the headline and 0.2% rise in core. US July Housing Starts dropped sharply by 2.7% to 1.649 mln. US July Real Earnings also fell 0.8% from a 0.6% in June. University of Michigan preliminary consumer sentiment dropped to 87.9 in August vs. 88.1 in July.
The Dow Jones remained in the positive territory closing at 8778 up by 33 points while Nasdaq also preferred to remain in positive territory closing at 1361 up by 55 points.
EUR- (O-0.9705 H-0.9895 L-0.9690 C-0.9851) :
Germany ZEW August expectations indicator dropped to 43.4 from 69.1 in July, marking the sharpest drop in two years. The expectations indicator for the Eurozone too tumbled, showing a 23.3-pt fall to 47.6. Much concern has surrounded the Eurozone's largest economy recently with unemployment continuing to look glum and economic growth stagnant. German economic institute RWI also cut its 2002 and 2003 growth forecasts, revising its 2002 estimate to 0.6%-0.7% from 0.9% and its 2003 forecast to 1.8%-2.2% from 2.3% . E-12 French July HICP remained unchanged at 1.5% compared to previous month.
GBP- (O-1.5241 H-1.5471 L-1.5225 C-1.5390) :
UK output prices remained unchanged in July, while input prices rose 0.6% on the month and pulled the yearly decline up to 3.6% from 7.2%. U.K. like-for-like retail sales grew 3.8% in July vs. 4.0% in June. Though interest rates are at a 38-year low of 4.0%, a growing number of institutes including the RBC are urging the Bank of England to ease monetary policy further to revitalize decelerating economic activity. According to data released by the office of National Statistics, output prices in July remain unchanged from June and rose 0.3% year-on-year, suggesting that inflationary pressures remain calm, which strengthens the case for a rate ease. UK inflation edged up to 2.0% y/y in July from 1.8% the previous month, but the headline RPIX number still remains well below the official inflation target of 2.5%. UK July Unemployment rate fell unexpectedly to 3.1% from 3.2% after the UK July Claimant Count fell by 3.1k instead of an expected rise.
JPY- (O-120.18 H-120.18 L-116.29 C-117.72):
Japan June Unadjusted Current Account Surplus was up 90.3% y/y. June Unadjusted Current Account Surplus was 1.5072 trillion yen, a 9th consecutive monthly increase. Japan's current account surplus rose 51.9% in the first half of 2002 from a year earlier, marking the second-largest amount for a 6-month period. June Unadjusted Trade Surplus was up 59% y/y. BoJ also kept view on Japan's economy unchanged for the first time in six months. BoJ said that domestic demand was still weak as global economic uncertainty kept its upward momentum, and downward pressure on prices was to continue on weak demand. BOJ pointed that Japan's export outlook is more uncertain due to unstable global stocks and dollar. The Nikkei tumbled 251.97-pts to 9,747.82 on fears that the Fed may signal on Tuesday that the recovery in Japan's largest trading partner is faltering. Japan July Bankruptcy Debt up 61.1% y/y at 1.2 trillion yen. Japan July Bankruptcies up 15.8% y/y and June Revised Industrial Output down 0.2% m/m.
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Source: Mecklai Financial Services
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