July 31, 2006	Monday	Rajab 4, 1427

THE rupee/dollar parity moved both ways in the local market last week. On the opening day of the week in review, the rupee held its last week’s closing levels versus the dollar and traded unchanged at Rs60.28 and Rs60.30 in the inter-bank market.

On the second day, there was some pressure on the dollar buying but smooth supply enabled the rupee to avert sharp erosion. The parity rates moved slightly as the rupee shed two paisa to trade at Rs60.30 and Rs60.32.

On the third day of the week in review, dollars’ buying increased by the corporate sector to meet the payments requirements and the rupee touched the 21-month low versus the dollar, shedding seven paisa. The dollar traded at Rs60.35 and Rs60.37, the lowest mark for the rupee since November 2004, when it dropped to Rs60.50 and Rs60.52 due to strong demand by importers.

On the fourth day, dollar selling eased pressure over the rupee. As a result, the rupee resisted further slide versus the dollar and traded at Rs60.35 and Rs60.37. Firmer trend was seen on the fifth trading day as the rupee-dollar parity rates did not move sharply and traded at Rs60.35 and Rs60.36, after gaining one paisa on the selling counter. The rupee held its firmness due to steady supply of US dollars over the week, the rupee in the inter-bank market lost seven paisa against the dollar.

In the open market, the rupee drifted lower against the dollar on July 24, as corporate sector continued to buy US currency. As a result of dollar buying pressure the rupee lost eight paisa for buying and another seven paisa for selling to trade at Rs60.75 and Rs60.80, against previous week’s Rs60.67 and Rs60.73. On July 25, the rupee managed to recover five paisa against the dollar for buying, but it did not show any change for selling and continued to change hands at Rs60.70 and Rs60.80.

On July 26, many banks were seen buying dollars to meet the importers’ demand. The rupee gave up its overnight firmness losing 13 paisa versus the dollar to trade at Rs60.82 and Rs60.92. On July 27, the rupee further shed three paisa against the dollar for buying. It, however, picked up two paisa on selling counter and traded at Rs60.85 and Rs60.90.

On July 28, the rupee extended further gains versus the dollar. It gained four paisa against dollar for buying and lost one paisa for selling and traded at Rs60.81 and Rs60.91. Compared with previous week close, the rupee in the open market lost six paisa on the buying counter and eleven paisa on selling counter versus the dollar this week in the open market.

Versus the European single common currency, the rupee gained some strength over the previous week close recovering 31 paisa on the opening day of the week in review. After gaining firm grounds versus euro, it traded at Rs76.27 and Rs76.37 on July 24, compared to previous weekend’s level of Rs76.58 and Rs76.68. On July 25, the rupee, however, failed to maintain its overnight firmness and lost 25 paisa, changing hands at Rs76.50 and Rs76.60.

On July 26, the rupee again showed a slight upturn versus the euro, as it inched up five paisa trading at Rs76.45 and Rs76.55. But on July 27, the rupee failed to hold its firmness and crossed Rs77 mark after losing 55 paisa. At close the euro was trading at Rs77.03 and Rs77.13. On July 28, the rupee, however, showed a firmer trend against euro, picking up 28 paisa to trade at Rs76.75 and Rs76.85. During the week, the rupee lost 17 paisa versus the European single common currency, amid wide fluctuations.

In the international financial market, the dollar rose on July 24, as some investors bet that a three-day sell-off, driven by speculation the Federal Reserve may pause the rate rising cycle next month. The dollar rallied against major European currencies and the yen, and hit a fresh three-month high against the Canadian dollar after unexpectedly soft Canadian retail sales data.

After last week’s sell-off, some traders were wary of the risk that a string of economic data due this week, including growth data for the second quarter could reignite hopes for more rate increases from the Fed, supporting the dollar. The dollar fell against most major currencies last week after Fed Chairman said US growth and inflation are likely to slow, raising expectations that the Fed may break its two-year-long monetary tightening campaign next month.

In New York, the euro was down 0.55 percent at $1.2625. Last week it touched a three-month low of $1.2456 before rallying for three days straight. The dollar was up 0.55 per cent against the yen at 116.80 yen, while the euro was down 0.1 percent against the Japanese currency at 147.43 yen, but still only a whisker away from last week’s record high at 147.89 yen. The Canadian dollar fell to a new three-month low after data showed a surprise fall in Canadian retail sales. The US dollar was last up 0.3 per cent at C$1.1410, not far below the session high at C$1.1458.

Sterling had added to recent gains in London after strong economic data last week, including above forecast inflation and economic growth figures, sparked talk of a Bank of England rate hike to 4.75 per cent perhaps as early as its next meeting on August 3. Against the dollar, sterling was down 0.37 per cent at $1.8522, off an earlier session high of $1.8595, which had brought it within a few ticks of the previous weekend’s six-week high.

On July 25, the dollar rallied after US consumer confidence and home sales data beat forecasts, leading to a slight rise in expectations that the Federal Reserve will raise interest rates again next month. Consumers were more upbeat in July, the figures showed, suggesting record high oil prices still haven’t dented the American consumer and helping the dollar gain for a second straight day. Analysts observed a little relief rally in the dollar, based on a slight shift in expectations for the next Fed meeting.

The euro fell 0.5 per cent on the day to $1.2575, but was still more than a cent above last week’s three-month low of $1.2456. The dollar was up 0.5 per cent on the day versus the yen at 117.20 yen, in sight of a three-month peak of 117.88 yen struck last week. Against the dollar, sterling fell around a quarter per cent to $1.8466 after US consumer confidence and existing home sales data beat expectations. The dollar rose 0.6 per cent to 1.2530 Swiss francs.

On July 26, the dollar extended its losses, hitting session lows across the board after a Federal Reserve survey reinforced a view that the US economy is slowing and that interest rates may be set to peak. The Beige Book said US economic activity grew overall in the period from June to mid-July, but that there were many local reports of slowing. Overall, that helped support a view that the Fed may pause in its interest rate tightening campaign at its policy meeting next month. Futures markets pared back their expectations of the Federal Reserve raising rates for an 18th straight time next month to a 46 percent chance from 54 per cent just before the Beige Book was released.

In New York, the euro was up 1.1 per cent at $1.2710 after momentarily climbing above $1.2715, a technical level that traders said could herald more dollar weakness in the near term. The euro was on track for its biggest daily gain versus the dollar in three months. The dollar fell 0.8 per cent against the yen to 116.20 yen, far below a three-month peak of 117.88 yen hit last week.

Sterling rose against the dollar and held steady versus the euro supported by a run of strong data that has underpinned expectations for a Bank of England rate rise, perhaps as early as August. It was up 0.20 per cent at $1.8435 against the dollar, having earlier dipped to $1.8391. Against the euro, sterling was steady at around 68.33 pence, close to opening week’s two-month peak of 68.08 pence.

On July 27, the dollar fell against most major currencies except the euro extending losses on views that economic growth and inflation may slow and give the Federal Reserve reason to halt its campaign of interest rate hikes. In a seesaw session, the dollar ended the day slightly higher against the euro. Traders said volumes were winding down, partly due to summer vacations, and that many market players were sticking to the sidelines amid uncertainty about the outlook for the US monetary policy.

The US Sens Charles Schumer and Lindsey Graham said on Wednesday they would demand a vote on legislation for steep tariffs on Chinese goods unless Beijing allowed the yuan to strengthen significantly by the end of September. That added to upward pressure on the yuan and helped support the yen, which is often traded as a proxy for the tightly controlled Chinese currency. The yen gained across the board, supported by a rise in the Chinese yuan, which closed at its highest level against the dollar since its revaluation last year amid renewed pressure for the currency to appreciate more quickly.

In late New York trade, the dollar was down 0.4 per cent against the yen at 115.80 yen, and down 0.1 per cent against the Swiss franc at 1.2388 francs. The euro rose to a record high of 148.07 yen, but ended the day down 0.6 per cent at around 146.95 yen. Sterling was up 0.15 per cent at $1.8570, having hit a seven-week high earlier in the day, while the euro was down 0.2 per cent at $1.2690, having earlier shot up as high as $1.2772.

At the close of the week on July 28, the dollar eased against the yen as an initial rise on disappointing Japanese data quickly lost steam and as the yen proved buoyant against other currencies. An as-expected 0.6 per cent increase in Japan’s core consumer price index in June, as well as a surprising rise in the unemployment rate the same month, helped to push up the dollar earlier in the session.

But the dollar’s rise stalled after hitting a high of 116.03 yen, as traders drifted to the sidelines to await second-quarter US economic growth data for clues on whether the Federal Reserve will raise rates for an 18th straight time next month.