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Rupee down 8paise at 46.28 a dollar

PTI — Thu, 26 Nov 2009 05:05:00 GMT

Mumbai: The rupee on Thursday depreciated by 8paise to 46.28 against the US currency in early trade on expectations of capital outflows by foreign funds.

At the Interbank Foreign Exchange (Forex) market, the domestic unit traded 8paise down at 46.28 a dollar. The rupee ended 17paise higher at 46.20/21 against the US currency in the previous session.

Forex dealers said expectations of more capital outflows by foreign funds as stock market may open lower in tandem with weak Asian equity markets and demand for the US dollar from importers mainly put pressure on the rupee.

They said, dollar’s losses against other currencies contained the fall.

Dollar tumbles to 14-year low vs yen

Malcolm Foster / AP — Thu, 26 Nov 2009 04:14:00 GMT

Tokyo: The dollar tumbled to 14-year low against the Japanese yen on Thursday after indications US interest rates will remain low and that the Federal Reserve isn’t overly concerned about the dollar’s slide.

The dollar sank to 86.51 yen in Tokyo trading, the lowest since July 1995.

Analysts said some investors were selling the dollar to buy gold, which surged to another record on Thursday.

Japan’s finance minister Hirohisa Fujii said Japan “will take appropriate steps if foreign exchange rates move abnormally.”

A strong yen is generally seen as bad for Japan’s economy because it erodes overseas income for the country’s big auto and electronics exporters.

Panasonic Corp. president Fumio Ohtsubo described the yen’s appreciation as “very severe” to reporters, saying it was an added blow given the already weak state of the economy.

The dollar has also been falling against the 16-nation euro, which rose to a 15-month high on Wednesday. It eased to $1.5114 on Thursday from $1.5132 late Wednesday.

The renewed slump in the dollar was driven largely by the publication on Tuesday of the minutes to the Fed’s last rate-setting meeting on 3-4 November.

The Fed said at the time that it plans to keep interest rates at “exceptionally low levels” for an “extended period,” currently the Fed funds rate stands at a range between zero and 0.25%, and that the fall in the dollar had been “orderly.”

Currency traders seized on the reference to the dollar as the Fed is usually wary of talking about changes in currency values.

Interest rate differences are likely to drive further dollar losses, analysts say. The US interest rate is among the lowest in the world.

Rupee up as foreign fund flows into stocks

Anoop Agrawal / Bloomberg — Wed, 25 Nov 2009 16:47:00 GMT

Mumbai: The rupee advanced to its strongest level in more than a month as a rally in Asian stocks boosted investor demand for emerging-market assets.

The local currency headed for a weekly gain after global funds bought $128.4 million (around Rs595 crore) more Indian equities than they sold in the first two days of the week, bringing inflows to a record $15.3 billion this year. The rupee also rose on speculation the nation’s refiners trimmed purchases of dollars after crude oil for January delivery declined to a five-week low yesterday in New York.

Investors are optimistic that fundamentals will improve sooner than later, and that is getting reflected in equities rising, said Naveen Raghuvanshi, a trader at Development Credit Bank Ltd in Mumbai. The rupee is poised to advance further.

The rupee rose 0.4% to 46.215 per dollar, according to data compiled by Bloomberg. That is the strongest level since 20 October. The currency has strengthened 4.1% this quarter, the best performance among Asia’s 10 most-active currencies excluding the yen.

Offshore contracts indicate bets the rupee will trade at 46.36 to the dollar in a month, compared with expectations of 46.40 on Tuesday. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non- deliverable contracts are settled in dollars rather than the local currency.

The benchmark Bombay Stock Exchange’s Sensex advanced 0.4% on Wednesday, bringing gains to 78% this year.

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Rupee drops on weak Asian cues

Reuters — Tue, 24 Nov 2009 04:12:00 GMT

Mumbai: The partially convertible Indian rupee weakened on Tuesday as lower Asian shares and a stronger dollar overseas soured sentiment.

At 9:25am, the rupee was at Rs46.63/64 per dollar, 0.4% below its Monday’s close of Rs46.465/475.

Dealers said they would wait for the local sharemarket open for further direction. Some month-end dollar demand was also seen in the market, they said.

Oil is India’s biggest import and refiners are the largest buyers of dollars in the local currency market. Dollar demand from refiners and importers tends to peak at the end of each month, when they make payments.

“We continue to watch the rupee within 46-47 in the short term. This range will hold good till EUR/USD trades within 1.4750-1.5050 while the stock market trades in consolidation mode within 16,500-17,500,” J. Moses Harding, head of global markets at IndusInd Bank, wrote in a daily note.

“The strategy for importers would be to buy 12-month dollars on overshoot to 47.00-47.25 while exporters to sell 12-month receivables at 48.25-48.40,” he said.

The dollar trimmed losses on Tuesday as Tokyo stocks failed to follow up a stronger day on Wall Street, prompting some to buy the dollar back, and as some investors closed dollar short-positions before the Thanksgiving holiday.

The index of the dollar against six majors was up 0.2%. Most Asian units were weaker compared to the dollar.

At 8:25am, the MSCI index of Asian stocks ex-Japan was down 0.5% while the Nifty India stock futures traded in Singapore were marginally lower.

Indian shares are expected to open flat to lower tracking weak Asian markets, but the losses are likely to be limited as cash-rich foreign funds look for investment.

Foreign buying of more than $15 billion worth of local shares has helped lift the rupee off a record low of 52.2 hit in early March and continues to be a key factor driving the rupee.

One-month offshore non-deliverable forward contracts were quoted at 46.64, little changed from the onshore spot rate.

Rupee gains the most in Asia as expansion seen spurring inflows

Anoop Agrawal / Bloomberg — Mon, 23 Nov 2009 18:45:00 GMT

Mumbai: The rupee gained the most in more than a week on speculation economic growth prospects in the region will encourage overseas investors to increase holdings of the nation’s stocks.

Ownership of Indian equities by funds based abroad climbed to a record $15.3 billion (Rs71,145 crore) as of 20 November, data from the Securities and Exchange Board of India (Sebi) showed.

The benchmark Bombay Stock Exchange’s sensitive index rose to the highest in a month on Monday.

The dollar fell against most major currencies, while the price of gold rose to an all-time high.

The tide is swaying away from the dollar because of fundamental reasons and that is helping the rupee, said Jai Prakash Israni, a currency trader in Mumbai at state-owned Andhra Bank. There is no reason why the rupee will not rally in the near term.

The rupee gained 0.4% to 46.48 per dollar in Mumbai, according to data compiled by Bloomberg.

The rupee may advance to 46.25 this week, Israni said. The local currency has strengthened 3.6% this quarter, the best performance in Asia. Economic reports this week may show rising export orders in Taiwan and faster growth in the Philippines, according to Bloomberg surveys of economists.

Gold has advanced 34% this year as the Dollar Index, a gauge of the currency’s value against six major trading partners, fell 7.4%. The most accurate forecasters predict the greenback will extend its drop as the world’s lowest borrowing costs, rising unemployment and a record $4 trillion of government bond sales between 2009 and 2010 weigh on the dollar.

Offshore contracts indicate bets the rupee will trade at 46.49 to the dollar in a month, compared with expectations of 46.66 at the end of last week. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.

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Rupee up but month-end importer demand caps rise

Reuters — Mon, 23 Nov 2009 08:16:00 GMT

Mumbai: The Indian rupee was little moved in afternoon trade on Monday as firm shares and broad weakness in the dollar continued to support the local unit, but some month-end dollar demand prevented further gains.

At 1:55pm, the partially convertible rupee was at Rs46.45/46, 0.3% stronger than Rs46.60/61 at close on Friday.

Dealers said there was good demand from importers and oil refiners to meet month-end import committments. Oil is India’s largest import and refiners are the biggest buyers of dollars in the domestic currency market.

Shares were trading up about 0.9% led by gains in energy major Reliance Industries Ltd after it made an offer to buy a controlling interest in US-based bankrupt petrochemicals company LyondellBasell Industries.

The US dollar drifted lower against the euro and other major currencies on Monday, losing its shine to a surging gold price and more dovish comments from US central bankers.

In the currency futures market, the most traded near-month contracts on the National Stock Exchange and MCX-SX were quoting at Rs46.4575 and Rs46.4550 respectively, with the total traded volume on the two exchanges at about $1.6 billion.

Firms wooing banks for foreign currency loans

Anup Roy — Sun, 22 Nov 2009 17:39:00 GMT

Mumbai: An increasing number of Indian corporations are raising foreign currency loans from local banks and converting them into rupees even as the overall loan growth in the banking system continues to be at a 12-year low.

Firms are finding foreign currency loans cheaper than raising loans in local currency directly because the London interbank offered rate, or Libor, an international reference rate for financial transactions, is attractively low.

Domestic banks raise foreign currency deposits from non-resident Indians, or NRIs, in the form of foreign currency non-resident (FCNR) loans. Currently, banks are paying 2.2-2.5% on one-year deposits. Interest rates on such deposits have come down substantially following the rate cuts by banks. The rate of interest for a one-year FCNR deposit was 3.12% in March.

Banks are lending such resources at 350-650 basis points over Libor, keeping a margin depending on the credit history of the borrower. One basis point is one-hundredth of a percentage point.

The three- and six-month Libor crashed to less than 1% earlier this year. The six-month Libor is now 0.4925%, and three-month 0.266%.

This, however, does not mean that the top-rated corporate borrowers are getting three-month loans at 4%.

This is because banks insist that the borrower must book a forward dollar contract to hedge the position. Since the three-month forward dollar now costs 2.3%, the cost of a three-month foreign currency loan for a top-rated customer works out to around 6.3%.

At current Libor, if a lower-rated firm takes a dollar loan, the cost comes to around 8.5%, which is much less than what a purely domestic loan would cost.

A senior banker with Union Bank of India told Mint that a firm which would get foreign currency loans at 600 basis points over Libor is eligible for a pure rupee loan at around 11%.

Forward cover is a sort of insurance against currency fluctuations. If the borrower does not take such cover and the rupee depreciates against the dollar, costs will go up substantially as it would need to buy dollars from the market for repaying the loan.

Under Reserve Bank of India norms, it is mandatory for borrowers to buy such forward contracts.

“We are seeing this trend for the last two months. As Libor has fallen to these levels, firms are increasingly asking us to give them such loans,” said a senior official with Bank of Baroda.

According to bankers, the not-so-well-rated firms are looking for such loans more than the top-rated ones, as they are the ones that will be faced with having to pay a higher price.

“Corporates are queuing up for these loans but banks are unable to meet the requirement of clients,” said N.S. Paramasivam, group treasurer of Essar Group. “They are giving the loans on a selective basis.”

“We look at the spread more than anything. If the bank is giving us loans at a lesser spread, this kind of loan always leads to cost savings,” said Paramasivam.

At the end of March, total outstanding deposits under the FCNR scheme stood at $13.21 billion, with another $975 million coming in over the first six months of the fiscal year ending March, according to an RBI publication.

Banks typically use these deposits to give loans to firms for their overseas needs. A portion of these deposits, however, is used for extending domestic loans as well.

Normally these are long-term loans with a reset clause every three to six months, linked to Libor. Firms have the choice of converting such borrowings into rupee loans after each reset.

Because RBI guidelines advise banks to avoid any asset-liability mismatch, they only extend such loans for less than a year because the foreign currency has to be returned to depositors at the end of that period.

Bankers said they deploy only 50-60% of foreign currency deposits for domestic loans. In the past, this limit was rarely reached as Libor was high and there was no cost saving to the borrower after banks added their margin and forward cover as a hedge.

A banker with another large Mumbai-based bank said that given the demand for such loans, lenders are exercising greater caution.

“We are generally giving these loans to our most-preferred customers, who have a good banking relationship with us,” said the banker who did not want to be identified because he is not authorized to speak to the media.

Despite the new-found popularity of such loans, they remain a cause of concern for borrowers because of the volatility of the foreign currencies involved, said Prabal Banerji, chief financial officer of Hinduja Group.

“For bridge loans or working capital needs, these loans are a very effective and cheap way of raising funds,” Banerji said. “But if you are betting on long-term loans based on this strategy, this is very risky. Since it is dependent on external factors such as Libor and foreign currency rates, any volatility in these makes the loan risky for long-term strategy making.”

NRIs can park their rupee deposits with domestic banks through non-resident external (NRE) accounts or non-resident ordinary accounts. They bank their foreign currency funds through FCNR deposits.

RBI has allowed banks to offer Libor plus 1% for FCNR deposits and Libor plus 1.75% for NRE funds.

Banks receive FCNR deposits in US dollars, pounds, euros, yen, Australian dollars and Canadian dollars.

The currency fluctuation risk is taken on by the banks in the case of FCNR; but in the case of other non-resident deposits, the risk is borne by the depositors.

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Rupee largely steady; stock gains help

Reuters — Fri, 20 Nov 2009 10:02:00 GMT

Mumbai: The Indian rupee further recovered from fresh one-week lows touched early on Friday helped by an over-1% rise in local shares but a stronger dollar overseas limited a sharper rise.

At 2:30pm, the partially convertible rupee was at Rs46.52/53 per dollar after hitting Rs46.75, which was its weakest since 13 November. It had closed at Rs46.6850/6950 in the previous session.

The dollar and yen on Friday kept their broad gains made the previous day but investor selling of higher-yielding currencies slowed as profit-booking on their rallies of the past few months eased up.

Indian shares reversed early losses and rose 1% on Friday afternoon, led by Reliance Industries , as investor sentiment improved with European markets edging higher.

Foreign portfolio investments of nearly $15.4 billion in 2009, have helped the rupee recover from a record low of 52.2 touched in early March.

One-month offshore non-deliverable forward contracts were quoting at Rs46.58, marginally weaker than the onshore spot rate.

In the currency futures market, the most traded near-month contracts on the National Stock Exchange and MCX-SX were quoting at Rs46.5475 and Rs46.55 respectively, with the total traded volume on the two exchanges at about $2.4 billion.

Rupee dives 48 paise to 46.68 a dollar

PTI — Thu, 19 Nov 2009 16:31:00 GMT

Mumbai: The rupee on Thursday ended sharply lower by 48 paise at 46.68/69 against the US currency on fresh dollar demand from oil companies, even as the government allayed fears of a likely curb on capital inflows.

Dealers at the Interbank Foreign Exchange (forex) here said strong dollar in the overseas market and an increased demand for the greenback put pressure on the local currency.

The rupee moved in tandem with the weak domestic stock markets, where the benchmark Sensex shed 213 points, they said.

Even though the government on Thursday ruled out limiting companies from borrowing from overseas market or curbing the rising fund flows from foreign institutional investors, saying the surge in foreign money is not a matter of concern at present, it failed to boost the rupee, dealers said.

Brazil’s latest move to curb capital inflows and weakness in European markets weighed down on the local bourses.

Rupee extends losses as shares fall; dollar gains

Reuters — Thu, 19 Nov 2009 08:52:00 GMT

Mumbai: The Indian rupee extended its fall in afternoon trade on Thursday weighed by losses in domestic shares and tracking the dollar’s rise versus major currencies overseas.

At 1:40pm, the partially convertible rupee was at Rs46.57/58 per dollar, weaker than its previous close of Rs46.20/21.

Shares fell on Thursday as Asian markets weakened on doubts about the pace of global recovery and worries about the risk of steps to temper capital inflows weighed on sentiment.

Dealers said there were concerns over imposition of capital controls in Asia after Brazil took another step on Wednesday aimed at containing the appreciation of its currency, unveiling a 1.5% tax on certain trades involving American Depositary Receipts issued by Brazilian companies.

The dollar and the yen rose on Thursday as investors, watching soft equities performances and capital controls in emerging markets, closed out positions in riskier currencies and bought back the two low-yielders.

One-month offshore non-deliverable forward contracts were quoting at Rs46.60/70, weaker than the onshore spot rate.

In the currency futures market, the most traded near-month contracts on the National Stock Exchange and MCX-SX were quoting at 46.5625 and 46.5650 respectively, with the total traded volume on the two exchanges at about $1.7 billion.

IMF chief reiterates stand on reserve currency

Alan Wheatley and Simon Rabinovitch / Reuters — Tue, 17 Nov 2009 19:03:00 GMT

Beijing: The imperative of greater global currency stability means the world can no longer rely, as it has done since the end of the gold standard, on a currency issued by a single country, the head of the International Monetary Fund (IMF) said on Tuesday.

Money talk: Strauss-Kahn at Tsinghua University in Beijing on Monday. He says an undervalued currency yields some advantages, but China needs to look further ahead to long-term stability. Jason Lee / Reuters

Dominique Strauss-Kahn, the managing director of IMF, restated his view that a new global currency might evolve out of the special drawing right (SDR), the fund’s in-house unit of account.

“That probably has to be a basket,” Strauss-Kahn said of the eventual replacement for the dollar. “In a globalized world there is no domestic solution,” he told a forum.

Speaking later at a news conference, Strauss-Kahn reiterated the message that has been a constant refrain during his visit—that China needs a stronger yuan as part of a package of policies to help rebalance its economy by promoting domestic demand.

“For us, because it just is consistent with the new economic policy in China, the sooner the better. How fast? It will take time. It is not something which will change in one step overnight,” Strauss-Kahn said.

China has kept the yuan, also known as the renminbi (RMB), pegged around 6.83 per dollar since July 2008, following a 21% rise over the previous three years, to help its exporters weather the global economic crisis.

“We do believe firmly in the IMF that the RMB is undervalued and that it is not only in the interests of the global economy but also in the interests of China to have a revaluation of the currency,” he said.

An undervalued currency introduces economic distortions, which might confer certain advantages but at a cost to other parts of economy, Strauss-Kahn explained.

“So China has a trade advantage, but it also has the wrong prices, leading to wrong decisions about investment in the long run. It is now time for China, having accumulated a lot of advantages from an undervalued currency, to look more forward to investment and long-term stability, and this long-term stability goes with getting rid of this distortion,” he said.

The US in particular has argued that an undervalued yuan is exacerbating economic imbalances that were a root cause of the global financial crisis. However, visiting US President Barack Obama referred only fleetingly to the issue after talks with Chinese President Hu Jintao.

“I was pleased to note the Chinese commitment made in past statements to move toward a more market-oriented exchange rate over time,” Obama said.

Strauss-Kahn expressed concern that political willingness to overhaul the international monetary system will falter if, in a year’s time, the visible signs of the economic crisis have faded.

He said the momentum to cooperate had already eased somewhat, six months after the London summit of the Group of Twenty agreed on a need for change to ensure a more stable global financial order.

A former IMF chief, Michel Camdessus, said time was of the essence to embark on reform of the global monetary system.

“This favourable window of opportunity is there. It will not stay open forever,” he said.

Camdessus gave broad backing to a recent proposal by Chinese central bank governor Zhou Xiaochuan that an expanded SDR could eventually replace the dollar as the global reserve currency.

“Our Chinese friends mean business,” he said of Zhou’s plan. As a corollary of a strengthened role for the SDR, governance changes were needed at the fund to shift power to big emerging economies, Camdessus said.

To that end, the SDR basket must be modified to include the yuan and perhaps the Indian rupee and Brazilian real as well.

“The RMB must be there. Period,” Camdessus said.

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Rupee weakens as dollar rises

Anurag Joshi / Reuters — Tue, 17 Nov 2009 12:33:00 GMT

Mumbai: The rupee stalled below four-week highs and then weakened on Tuesday as the dollar’s rise in offshore markets prompted a wave of importer selling and a flat sharemarket weakened support.

The partially convertible rupee ended at 46.30/31 per dollar, off an early high of 46.13 and about 0.20% weaker than Monday’s close of 46.20/21.

On Monday, the rupee had touched 46.0 during trade, its strongest since 20 October.

“A strong dollar influenced the rupee’s fall. Flows were brisk today so it couldn’t recover,” said a senior dealer with a foreign bank.

The dollar rebounded from the previous session’s 15-month lows after Federal Reserve chairman Ben Bernanke said the US central bank was “attentive to implications of changes in the value of the dollar.”

The BSE share index stretched a winning run into a third day with a 0.1% gain, after the market spent most of the day in negative territory.

Foreigners have bought more than $15 billion worth of shares so far in 2009, after selling more than $13 billion last year. The inflows have helped the rupee recover from a record low of 52.2 in March.

One-month offshore non-deliverable forward contracts were quoting at 46.27/37, slightly stronger than the onshore spot rate.

In currency futures, the most traded near-month contracts on National Stock Exchange and MCX-SX were at 46.32 per dollar, from Tuesday’s 46.3925 and 46.3950 respectively.

Rupee advances for the fourth week on strong economic data

Anil Varma / Bloomberg — Mon, 16 Nov 2009 19:45:00 GMT

Mumbai: The rupee rose to the strongest level in four weeks against the dollar on speculation overseas investors will add to holdings of stocks as the region leads the world out of recession. Bonds gained for a second day.

India’s currency and the MSCI Asia-Pacific Index of regional shares both gained the most in a week after Japan reported its economy expanded at the fastest pace in more than two years. Industrial production in India increased 9.1% in September, beating analysts’ estimates for a 7% growth, a government report showed on 12 November.

The optimism across Asian stock markets is influencing the rupee as economic data continues to be encouraging, said Roy Paul, assistant manager of treasury at Federal Bank Ltd in Mumbai.

The rupee climbed 0.2% to 46.225 per dollar, according to data compiled by Bloomberg. It reached 46.115 earlier, the highest level since 20 October, and has strengthened 4.1% this quarter, the best performance among Asian currencies.

Offshore contracts indicate bets the rupee will trade at 46.19 to the dollar in a month, compared with expectations of 46.32 at the end of last week. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.

Overseas investors have bought Indian shares worth $15 billion (Rs69,150) crore more than they sold so far this year, more than triple the amount from a year ago, according to data released by the Securities and Exchange Board of India. The Bombay Stock Exchange’s Sensitive Index gained 1.1% on Monday, the most since 11 November.

The Reserve Bank of India forecasts the $1.2 trillion economy to grow 6% or more in the financial year ending 31 March. That will be the second-fastest pace of expansion among major economies after China.

Bonds gained for a second day after the government sold debt maturing in 2016 and 2019 at lower yields than traders estimated on 13 November, signalling stronger-than-expected demand for fixed-income securities.

India sold seven-year and 10-year notes at 7.36% and 7.34% at an auction in Mumbai, according to the central bank.

Friday’s auction result gave out positive signals as far as demand for bonds is concerned, said Roy Paul, assistant manager of treasury at Federal Bank Ltd in Mumbai. That has triggered a bit of a rally.

The yield on the 6.9% note due July 2019 dropped one basis point, or 0.01 percentage point, to 7.31%, according to the central bank’s trading system. That’s the lowest level in more than a week.

The price rose 0.08, or 8 paise per Rs100 face amount, to 97.18. The rate on the benchmark bond has climbed 2.06 percentage points this year.

How a weak yuan is aiding China at the cost of other exporters

Mark to Market | Ravi Ananthanarayanan, Vatsala Kamat and Manas Chakravarty — Mon, 16 Nov 2009 17:09:00 GMT

The pressure on China to appreciate the yuan is gaining momentum, with the International Monetary Fund adding its voice to the crowd. There are plenty of reasons for the pressure. With experts warning that growth in the developed markets is likely to remain low for quite some time, the export-oriented economies of Asia are scrambling to ensure markets for their goods. China, however, enjoys an unfair advantage over the other exporters, simply because it pegs its currency closely to the dollar. The situation has been made worse by the inflow of dollars into Asian capital markets and by the dollar carry trade. Since funding costs in the US are very low, speculators are borrowing in dollars and investing in non-dollar assets. These factors have led to a sharp rise in the exchange rates of Asian currencies.

Graphics: Yogesh Kumar / Mint

The US Dollar Index, which measures the dollar against a basket of six currencies of the developed world, reached a high of 89.11 on 5 March before starting a long slide—on Friday, it closed at 75.33. That’s a fall of 15.5%. Since 5 March, while the dollar has been steady against the Chinese currency, it has depreciated by 15% against the euro, by 22% against the Indonesian rupiah and by 26% against the Korean won. The chart shows how the currencies have performed against the dollar since 5 March. Note the flat yuan, while the won and the rupiah have appreciated dramatically. That naturally puts the exports of these countries at a disadvantage against Chinese exports.

Incidentally, the Indian rupee has not really seen much appreciation, despite attracting large dollar inflows, probably because unlike most Asian economies, India runs a current account deficit. Also, while several Asian central banks have been buying dollars in order to support it, the latest Reserve Bank of India bulletin shows that the central bank’s dollar purchases in August and September have been very modest.

For the Asian exporters, the worries are twofold. One, they are obliged to support their currencies and are adding to their reserves by buying dollars, which is depreciating in value. They have been trying to diversify their reserves away from the dollar, which makes the dollar even weaker. And two, they are losing exports to China. Incidentally, the relative weakness of the rupee should be good for the country’s export sector.

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China, US spar over currencies ahead of Obama visit

Patricia Zengerle & Yoo Choonsik / Reuters — Sun, 15 Nov 2009 15:07:00 GMT

Singapore: The US and China sparred over exchange rates at a meeting of Asia-Pacific leaders on Sunday, pointing to tricky talks ahead for US President Barack Obama when he flies to China to address economic tensions.

Forging ties: US President Barack Obama shakes hands with Thailand’s Prime Minister Abhisit Vejjajiva after the Association of Southeast Asian Nations-US leaders’ meeting in Singapore on Sunday. Jim Young / Reuters

The discord surfaced at a summit of the Asia-Pacific Economic Cooperation (Apec) forum in Singapore when a reference to “market-oriented exchange rates” was cut from a communique issued at the end of two days of talks. An Apec delegation official said Washington and Beijing could not agree on the wording.

That underscored strains likely to feature when Obama begins meetings in Shanghai on Monday following moves by Washington to slap duties on various Chinese-made products and a growing drumbeat of pressure on Beijing to let its yuan currency strengthen. Chinese officials have grown testy about the pressure over the yuan. Chinese banking regulator Liu Mingkang told a forum in Beijing on Sunday that ultra-low interest rates in the US were fuelling speculation in overseas asset markets and threatened the global economic recovery.

Obama pledged on Saturday to deepen dialogue with China rather than seek to contain the rising power, which is set to overtake Japan next year as the world’s second largest economy. But issues ranging from the yuan and trade tensions to human rights could complicate what many regard as the most important relationship of the 21st century.

“With regards to trade, this is a difficult time for the US-China relationship,” said Derek Scissors, trade economist at the Heritage Foundation in Washington.

“The signs are actually getting worse instead of better.” Chinese President Hu Jintao ignored the yuan issue in several speeches at Apec and focused instead on what he called “unreasonable” trade restrictions on developing countries.

An earlier draft pledged Apec’s 21 members to maintain “market-oriented exchange rates that reflect underlying economic fundamentals”. That statement had been agreed at a meeting of Apec finance ministers on Thursday, including China, although it made no reference to the yuan.

Washington says an undervalued yuan is contributing to imbalances between the US and the world’s third biggest economy. China is pushing for US recognition as a market economy and concessions on trade cases that would make it harder for Washington to take action against Chinese products.

China’s central bank said last week it would consider major currencies in guiding the yuan, suggesting a departure from an unofficial peg.

But Chinese vice-commerce minister Chen Jian on Sunday played down talk of a shift in policy as well as mounting expectations of a rise in the yuan’s exchange rate.

The yuan has effectively been pegged against the dollar since mid-2008 to cushion its economy from the downturn.

China is coming under growing international pressure to let it rise because its manufacturers have gained market share at the expense of rivals in countries whose currencies have risen against the falling dollar.

Obama told Apec leaders the world economy was on a path to recovery but warned that a failure to re-balance the global economic system would lead to further crises.

“We cannot follow the same policies that led to such imbalanced growth. If we do, we will continue to drift from crisis to crisis, a failed path that has already had devastating consequences for our citizens, our businesses, and our governments,” Obama said.

Obama’s strategy calls for the US to save more, spend less, reform its financial system and cut its deficits and borrowing. Washington also wants key exporters such as China to boost domestic demand.

The Apec statement endorsed stimulus measures to keep the world from sliding back into recession and urged a successful conclusion to the Doha Round of trade talks in 2010.

Neil Chatterjee, Caren Bohan and Lucy Hornby and the Beijing bureau and Paul Eckert in Washington contributed to this story.

Rupee recovers from 1-week low

Swati Bhat / Reuters — Fri, 13 Nov 2009 12:22:00 GMT

Mumbai: The rupee strengthened towards three-week high on Friday, recovering smartly from an early fall to a one-week low on arbitrage trade and as the dollar’s drop versus majors and gains in local shares cheered.

The partially convertible rupee closed at 46.31/32 per dollar, off a low of 46.75, its lowest since 6 November and 0.8% stronger than its previous close of 46.66/67.

On Wednesday, the rupee had risen to 46.29, its strongest since 20 October.

Dealers said there was a lot of arbitrage as bankers took advantage of the rupee’s stronger rate against the dollar in offshore non-deliverable (NDF). One-month NDF was quoted at 46.22/32.

Banks with access to both the onshore and offshore markets could buy dollars in the offshore market and sell them onshore, to profit from the price differential, thus, helping the rupee in the spot market.

The dollar’s weakness against major units overseas also helped the local unit. The index of the dollar against six major currencies was down 0.3%.

The dollar fell on Friday, paring some of the previous day’s gains, while the euro garnered support from data showing the euro zone pulled out of recession in the third quarter.

Ahead of a visit to Asia by US President Barack Obama, traders said there were rumours China would revalue its currency, which had boosted the rupee.

“I think (dollar) will open higher on Monday if nothing happens in China,” said Ashtosh Raina, head of foreign exchange trading, at HDFC Bank.

Indian shares rose 0.9% on Friday, with the market posting its biggest weekly gain in 11 weeks on strong foreign fund inflows.

Fund flows into stocks are a driver for the rupee. Foreign investors have bought a net $14.9 billion of shares so far in 2009, after selling more than $13 billion last year. The inflows have helped the rupee recover from its record low of 52.2 in early March.

In the currency futures market, the most traded near-month contracts on the National Stock Exchange and MCX-SX closed at 46.3925 and 46.3950 respectively, with the total traded volume on the two exchanges at about $3.8 billion.

RBI releases draft norms on forex options

Anup Roy — Thu, 12 Nov 2009 17:48:00 GMT

Mumbai: In a move that could change the face of over-the-counter derivatives market in India, the Reserve Bank of India, or RBI, on Thursday proposed to allow importers and exporters to write and sell “put” options both in foreign currency-rupee and cross-currencies and earn premium on them.

The Indian central bank has also proposed that banks should be allowed to offer plain vanilla cross-currency options to resident Indians who need to transform their rupee liability into foreign currency liability.

Currency deal: RBI has put up the draft guidelines on its website and is seeking comments on the proposals for over-the-counter foreign exchange derivatives and hedging commodity price risk and freight risk. Amit Bhargava / Bloomberg

RBI has put up the draft guidelines on its website and is seeking comments on the proposals for over-the-counter foreign exchange derivatives and hedging commodity price risk and freight risk by 15 December.

“The objective seems to be sensitizing the population to get familiarized with derivatives with an eventual goal to rupee convertibility,” said Harihar Krishnamurthy, head of treasury at First Rand Bank.

The buyer of a “put” option gets the right but not the obligation to sell a specified amount of an underlying asset at a set price within a specified time.

Similarly, the buyer of a “call” option has the right but not the obligation to buy an asset in a similar manner.

When a company enters into an option transaction with a bank, the structure is such that the bank sells a call option to the company and the company sells a put option to the bank. This nullifies the cost of entering into such a transaction. This is also known as zero-cost structure for which no premium income is earned.

Companies are not allowed to float a stand-alone put option on its own. It is only allowed as a part of the zero-cost structure, according to S. Rajendran, general manager (treasury), Union Bank of India.

If the RBI proposal becomes a norm, companies can float stand-alone put options on any currency. Since a put option exposes the issuer to risks, the issuer can charge premium for it. These options should be “covered”, or the exporter or importer should have an underlying asset before it can float this kind of option.

According to foreign exchange dealers, the zero-cost option is not fully zero cost and is quite complicated. “RBI may want to make the structure simple. When you buy an option it’s your view. You may not have to enter an opposite transaction unnecessarily,” said Rajendran.

RBI said the option must be covered or must have underlying assets.

“Importers and exporters having underlying unhedged foreign currency exposures in respect of trade transactions, evidenced by documents (firm order, letter of credit or actual shipment), may write plain vanilla stand alone covered call and put options in cross-currency and receive premia,” the draft guidelines said.

Since the counterparty to any foreign exchange transaction is a bank, the onus is on the company to satisfy the bank that it has sound risk management systems in place.

Banks will also be allowed to offer plain vanilla cross-currency options for those people who want to transform their rupee liability to a foreign currency liability.

How will that work? Let’s assume that a person has taken a yen loan and is paying through rupees in India.

In this case, the bank needs to buy dollars using the customer’s rupee resources and, at the second stage, yens using the dollar. This exposes the customer to double currency risk. The cross-currency options minimise the risk of conversion.

“Before offering the product, the maximum possible loss/worst downside, under various scenarios is to be quantified and conveyed to the customer in the term sheet,” the draft guidelines said.

Another important recommendation that RBI proposed is to allow special dispensation to small and medium enterprises to book forward foreign exchange contracts without production of underlying documents for hedging their foreign exchange exposure.

The draft also proposed that resident individuals be allowed to self declare and opt for hedging facility for any actual or anticipated remittances up to $100,000 (Rs46.5 lakh) without producing any underlying documents.

Rupee drops tracking stocks, dollar gains

Swati Bhat / Reuters — Thu, 12 Nov 2009 12:41:00 GMT

Mumbai: The rupee weakened on Thursday, giving up three-week high touched in the previous session, weighed down by weak domestic shares, dollar demand from oil firms and late reversal in the US unit versus majors.

The partially convertible rupee closed at 46.66/67 per dollar, 0.8% below its previous close of 46.29/30, which was its highest since 20 October. The unit traded in a band of 46.37 to 46.64 on Thursday.

“Rupee took cues from equity markets, which continued to be bearish despite better-than-expected output data. There was a lot of profit-taking on the long-rupee positions built yesterday,” said Ashutosh Khajuria, head of treasury, at IDBI Bank.

“Over the next week, the rupee should be close to 46.50. The topside for the dollar should be capped at 46.65. I am still bullish on the rupee in the medium term,” he added.

The industrial output grew a faster-than-expected 9.1% in September from a year earlier, helped by stimulus measures and adding to the debate over when the government should pull back from its aggressive policies to drive growth.

The Bombay Stock Exchange 30-share benchmark shed 0.9% on profit-taking by investors. The Sensex is up 5% this month after it shed 7.2% in October, when it had registered its worst monthly fall.

Foreign fund flows in and out of the local equity market are key in determining the direction for the rupee. Foreign investors have bought a net $14.8 billion so far in 2009, helping the rupee claw back from a record low of 52.2, hit in early March.

Last year, outflows of more than a net $13 billion had pushed the rupee down by a fifth.

Dealers said dollar’s rebounce against major currencies in late trading and demand for the US unit from oil refiners weakened the rupee.

Oil is India’s biggest import and refiners are the largest buyers of dollars in the local currency market.

One-month offshore non-deliverable forward contracts were quoting at 46.57/67, slightly stronger compared to the onshore spot closing rate.

“A lot of focus would be on the inflation numbers on Saturday, which would provide cues to the stock market on Monday and thus also to the rupee,” IDBI’s Khajuria said.

In the currency futures market, the most traded near-month contracts on the National Stock Exchange and MCX-SX closed at 46.6725 and 46.67 respectively, with the total traded volume on the two exchanges at about $3.7 billion.

Rupee ends at 3-week high as stocks rally

Reuters — Wed, 11 Nov 2009 13:04:00 GMT

Mumbai: The Indian rupee hit a three-week high on Wednesday, buoyed by the sharemarket’s 2.5% rise and the dollar’s fall to 15-month lows against a basket of currencies, and further gains were expected in the end of 2009.

The partially convertible rupee closed at Rs46.29/30 per dollar, its highest since 20 October and 0.5% stronger than the previous close of Rs46.50/51.

“The rupee appreciated tracking the stocks and the euro’s upward move versus the dollar. Stocks would be the key tomorrow,” a senior dealer with a private bank said.

Shares rose 2.5% to their highest close since 21 October, lifted by renewed optimism on the world economy.

The sharemarket has risen nearly 75% this year, with foreign fund inflows being a key driver. Foreigners have purchased a net $14.5 billion worth of stocks so far this year, after having sold more than a net $13 billion last year.

Traders said they would be watching the dollar against major currencies, especially the euro, for further direction.

The dollar hit a 15-month low against a currency basket on Wednesday as it came under broad selling pressure versus its higher-risk counterparts on the view that the global economy may be improving.

One-month offshore non-deliverable forward contracts were quoting at Rs46.24/34, not far from the onshore spot rate.

Calyon Bank analysts said in a note they expected the rupee to rise to 45.50 by the end of 2009 and to 41 by the end of 2010.

In the currency futures market, the most traded near-month contracts on the National Stock Exchange and MCX-SX closed at Rs46.36 and Rs46.3525 respectively, with the total traded volume on the two exchanges at about $2.8 billion.

Rupee slips as share market rally ends

Reuters — Tue, 10 Nov 2009 12:24:00 GMT

Mumbai: The Indian rupee was unable to hold on to an early rise to three-week highs gains on Tuesday, losing ground to end slightly weaker after the stock market posted its first fall in five days.

The partially convertible rupee ended at Rs46.50/51 per dollar, weaker than Rs46.46/47 at close on Monday.

In early deals it rose to Rs46.35, its highest since 21 October, but later fell to a low of Rs46.61.

“It weakened because stocks fell after Fitch report on the possible downgrade of Britain,” said a forex trader at a foreign bank.

Fitch Ratings said that of the four major economies with AAA status, the UK was the most at risk, sending the pound down sharply.

Weak dollar against the euro late in the Indian session helped contain the rupee’s fall, the trader said.

“We expect USD/INR to grind towards 46.10-20 area,” he said.

The dollar’s trade-weighted index hovered near a 15-month low on Tuesday on the view US interest rates will stay low.

Indian shares snapped a four-day winning streak and fell 0.35%, weighed down by telecom stocks that dropped on a bleak out for the sector.

Foreigners have bought a net $14.5 billion of shares so far in 2009, after selling more than a net $13 billion last year. These inflows have helped the rupee recover from its record low of 52.2 hit in early March.

One-month offshore non-deliverable forward rupee contracts were quoting at Rs46.48/58, in line with the onshore spot rate.

In the currency futures market, the most traded near-month contracts on the National Stock Exchange and MCX-SX closed at 46.54 and 46.5375 respectively, with total traded volume on the two exchanges at about $3.6 billion.