Sudden fall in unemployment numbers in US had raised speculations that Federal Reserve may end its easy money policy sooner. Accordingly, US Dollar started gaining against other major currencies including Indian Rupee. Poor monsoon data and negative FII inflows also put pressure on INR in the beginning of the week.

Gold and other commodities were also seen losing against US Dollar. Bursting of bubble in Chinese markets also added pressure on the metals.

However, Federal Reserve, in its FOMC minutes on Wednesday, said that the easy money policy will be continued for an extended period of time and it would pump in $300 billion dollars (around Rs.15,00,000 lacs) into the market by October 2009. This statement revived positive sentiments in the global markets.

Positive GDP numbers in Germany also added to the bullish sentiments of the markets. Euro gained in a big way against US Dollar. Gold also had a spurt against USD rising to $963. Fall in South African Gold production also helped the Gold prices to firm up against US Dollar.

Indian Rupee also turned into positive trend and went below 48 levels. Surprise rise in IIP numbers (India) for the last month also helped INR to strengthen against USD. However, heavy demand for Dollars from the importers checked any major appreciation for Rupee.

Worse than expected US Consumer confidence data released in US on Friday indicated that the recession is far from over and the US Dollar gained against other major currencies accordingly. Gold also fell to $948 levels.

US Dollar may begin the next week with some gains against other major currencies including Indian Rupee. Local currency markets will also look for the trend in the equity markets particularly the FII inflows. For the next week, Rupee may trade between 48 and 49 levels.

There is a major risk of downgrading of Indian Rupee in case our government increases its borrowing programme for the current fiscal year to accommodate the possible drought relief measures.

Gold may face a strong resistance around $963 & $ 980 levels. Breaking the above two levels may take the prices to $1000 levels. In Rupee terms, MCX Gold may face resistance around 15020 and 15200 levels.

Indian stock markets are now cautious about the impact of poor monsoon on the overall GDP. It is expected that there may be an impairment of around 1.00% in the overall GDP for the current year due to poor monsoon. Further, reduced crop production will add to the pressure on the food inflation which is already at a high level.

Overall outlook for a normal monsoon seems to be a distance dream now and the short fall is likely to be over 25%, sounding weakness for rural demand prospects.

Still the broader trend of stock prices has been inline with Dow futures and the net inflows from FIIs, who were once again net sellers in cash market except for Thursday. The gains were broad based and the mid and small cap stocks gained more than the large cap stocks. There was renewed interest from domestic institutions and they gave strong support at every low, absorbing most of the net sales from FIIs and public.

Stock markets are quite happy about the IIP data and there is view that impact of poor monsoon may be nullified by a strong growth in industrial sector. However, personally I would like to see the trend of IIP numbers for some more months to take a firm view on the revival in the industrial sector.

Next week, Indian Stock markets will be looking for direction from its Asian peers and US Dollar movement. As said earlier, Nifty may face resistance around 4610 & 4730 levels and find support around 4520 and 4480 levels. Firm breaking above 4730 levels may indicate a new bull cycle whereas a complete fall below 440 may point towards a steep fall.

Wishes for a happy week ahead.

DOLLARS FLOODING THE MARKETS

Ben Bernanke’s assurance on continuing “Easy Monetary Policy” resulted in strengthening of major global currencies including Indian Rupee against US Dollar. Positive US home-sales data added to the hopes that US recession will have a quicker end.

At the same time, as the UK and European economic data was not quite convincing, GBP and Euro gave up part of their gains. JPY lost against USD after the improvement in global sentiments increased the risk appetite of the investors who moved their money to riskier assets.

Indian Rupee rallied up to 48.20 levels thanks to the global trends and positive equity markets but lost its momentum once the Importers rushed to cover their position by buying US Dollars.

Better than expected Six-Core-Industries growth (India) had a positive impact on the market and Rupee closed with its biggest weekly gain in last two months.

Gold prices went up during the last week on as an alternative investment avenue because of fall in dollar. Crude also strengthened on easy dollar policy, positive equity sentiments and fresh hopes on a quicker end to the recession

Coming week, USD-INR market will be keenly looking at the quarterly monetary policy to be announced by RBI. FII inflows will have a positive impact on Rupee. Markets will also be looking at the US data like home-sales, jobless claims and consumer confidence.

As per Technical Analysis, Rupee may be moving within a range between 48 and 49 during the week.

In case global equity markets are not doing well, there is a good chance of gold picking up and rallying to new highs. Crude oil may face strong resistance around $70 levels.

Wishing a happy week ahead

Factors Impacting the Rupee Movement

It is important for the interested readers to understand how various factors impact the Rupee Movement, both in short term and long term, against other major currencies. I have made a sincere attempt herein to brief major factors. I would like to listen the readers’ views also on this subject.

Economic Growth

A strong economy means a strong currency. Economic strength of a country improves its status among other major economies. Better image brings in more capital inflows into the country mainly through direct (FDI) and portfolio investment (FII) route. Higher inflows improve the demand for the local currency. For instance, India showing a stronger growth amidst a gloomy global scenario, has invited a huge FII inflow in the recent times.

Fiscal Deficit & Sovereign Rating

Every country has a credit rating arrived by international rating agencies such as S&P, Moody etc. The rating is arrived mainly on the basis of the fiscal burden of the federal government vis-à-vis the size of economy. India fares badly here. Fiscal deficit of our central government is hovering around 10% according to some unofficial estimates. As of now, India is rated at the lowest rung of the investment grade. Any further degrading will have a serious impact of our Rupee’s position. Rating of the corporate from a particular country can hardly be better than the rating of their government. So raising of funds abroad by Indian companies becomes a costly affair resulting in forex inflows becoming scarcer.

Trade Deficit

Higher exports mean higher availability of foreign currency. Higher imports mean scarcity for foreign currency. Countries like China have a huge kitty of foreign currency thanks to their huge exports. India has always been an importing country. In particular, oil import is a huge burden for us even though IT exports and remittances from NRIs help to bridge the gap to some extent.

Interest Rate Differential

Every country has a different interest rate structure. Money originating from lower interest rate countries like Japan and US chase the assets with higher interest rate in countries like India. In fact, interest rates in Japan and US are close to zero level. For them, some thing is always better than nothing. Such high interest rate differences led to the “Yen Carry Trade” that near lasted for a decade.

Government Policies

Inflation and exporters’ interest are the major factors driving the government intervention in a “not fully convertible currency” environment like India. Higher inflation would induce the monetary authorities like RBI to push for a stronger Rupee through which the import costs can be reduced. At the same time, RBI may push for a weaker Rupee to increase the competitiveness of Indian exports abroad.

Above factors can be measured from the various reports published by the Government of India and RBI from time to time. Following data are crucial to understand the Rupee’s position vis-à-vis the world’s currency i.e. US Dollar.

GDP Growth
Industrial Production
Forex Reserves with RBI
Inflation
Exports-Imports Data
Fiscal Deficit of the Government of India
Monetary Policy of RBI
Global interest rates
Stock Market movements
FII/FDI flows

I invite readers’ view on the above subject

With best wishes

INDIAN RUPEE

There are many websites giving detailed views about stock markets and the price movements therein. At the same time, there are not many websites existing for discussing about the movement inINR.

In fact, price movement in INR has a larger and wider implication in the day to day life of many Indians right from exports/imports to remittances and inflation.

For instance, a weak Rupee will drive away FIIs whose inflows are key to the continuation of stock market success story. Weaker Rupee means higher import inflating the local prices leading to inflation which is not liked by common people.

At the same time, a weaker Rupee will make exporters and NRIs happier as they can receive more money in terms of rupee for the same money they earn abroad.

Generally, Rupee movement is dependent on various factors such as trade deficit, size of remittances and FII/FDI inflows, fiscal deficit, inflation, interest, sovereign rating along with many others.

This website was launched with the main intention to discuss about the above said factors impacting the direction of INR both in short term and long term.

It can be an educative journey both for the blogger and the readers.

I request your kind support and an interactive participation would help every one.

With best wishes