September 04, 2006	Monday	Sha'aban 10, 1427

Mixed sentiments were witnessed in the local currency market this week. The rupee weakened versus the dollar in the inter-bank market, where it remained under dollar demand pressure and crossed resisting level of Rs60.40 maintained for many weeks. But in the open market the rupee managed to trade in the Rs60.35 and Rs60.40 range during the most part of the week in review. Versus the euro, the rupee continued to show weakness.

The inter-bank market opened the week on a quiet note with the rupee showing no change versus the dollar, which was seen changing hand at its previous weekend’s levels of Rs60.35 and Rs60.37 on the buying/selling counters on August 28.

However, the rupee lost its firmness versus the dollar on the following day due to strong dollar demand and shed two paisa for buying and one paisa for selling to trade at Rs60.37 and Rs60.38 on August 29.

The rupee extended further losses versus the dollar on August 30 on both the counters due to persistent increase in dollar demand by the importers to cover their import payment bills. The rupee shed two paisa and surpassed its resisting level of Rs60.40 that it has been holding for the past several weeks to trade at Rs60.39 and Rs60.41. Despite strong dollar demand, the rupee resisted any sharp fall versus the dollar.

The decline in the rupee/dollar parity persisted for the third consecutive day, as the rupee further shed one paisa amid higher demand for the greenback and traded at Rs60.40 and Rs60.42. However, improved supply of the US currency helped the rupee minimise its losses on August 31. The downward trend in the rupee/dollar parity continued on September 1. The rupee further lost six paisa to trade at Rs60.46 and Rs60.48, as the dollars’ demand was higher due to oil payment. During the week in review, the rupee in the inter bank market lost 11 paisa versus the dollar.

Bullish sentiment prevailed in the open market on the week’s opening day as the rupee opened the week on a positive note gaining seven paisa versus the dollar which was quoted at Rs60.38 and Rs60.43. Sufficient inflows of remittances helped the rupee to recover its lost ground on August 28, as against last week close of Rs60.45 and Rs60.50. On August 29, the rupee maintained its overnight levels versus the dollar amid moderate trading, changing hands at Rs60.38 and Rs60.43.

The rupee/dollar parity did not show any change for the second day in a row on August 30, as the rupee held its overnight levels versus the dollar unchanged at Rs60.38 and Rs60.43. However, it managed to display some strength versus the dollar on the third day, when it managed to recover three paisa to trade at Rs60.35 and Rs60.40 on August 31.

The rupee did not show any change versus the dollar in the open market as the local currency market remain closed due to country wide strike called by the opposition on September 1. During the week in review, the rupee, however, managed to recover ground versus the dollar in the open market. It gained ten paisa over the previous week close.

Versus the euro, the rupee lost 39 paisa on August 28, when it traded at Rs77.09 and Rs77.19, as against Rs76.70 and Rs76.80, last week. On August 29, the rupee further shed eight paisa, changing hands at Rs77.17 and Rs77.27, as the dollar managed to recover versus the leading currencies in the international currency markets, ahead of Federal Reserves meeting.

On August 30, the rupee continued to show its downtrend versus the European single common currency and further shed two paisa and traded at Rs77.19 and Rs77.29. The rupee weakness versus the euro persisted on August 31, when it lost another 15 paisa against the European currency, which was quoted at Rs77.34 and Rs77.44. The rupee shed 64 paisa versus the European single common currency this week.

In the world markets, the dollar weakened slightly in quiet trade on August 28, ahead of key signals this week of where the US interest rates might be headed, including Federal Reserve meeting minutes and the August payrolls report. The yen also was broadly weaker, falling to a record low against the euro, due to reduced expectations for rate hikes this year by the Bank of Japan following soft Japanese inflation data last week.

Trading volumes were thin because London’s financial markets were closed for a holiday. The euro was up 0.3 per cent at $1.2782, but this was more than a cent below two-month highs of around $1.2940 on August 21. The dollar slipped slightly against the yen to 117.16 yen, mostly due to the US currency’s broad weakness. The dollar fell 0.4 per cent to 1.2355 Swiss francs while sterling rose 0.4 per cent to $1.8950.

On August 29, the dollar declined after minutes from the Federal Reserve’s August, 8 policy meeting reflected a lack of urgency on the part of the US central bank to contain inflation pressures by raising interest rates. Earlier in the session, the dollar had pared losses, and even gained against the euro, amid expectations the minutes would reflect some controversy over the Fed’s decision three weeks ago to keep interest rates steady at 5.25 per cent.

The euro rose 0.3 per cent from to $1.2820 after plumbing intraday lows around $1.2750. Against the yen, the dollar extended its decline to 116.65 yen, down 0.5 per cent, retreating from last weekend’s one-month high of 117.40 yen. US economic data in the last few months have pointed to slowing growth, apparently supporting the Fed’s view that inflation pressures will likely moderate as growth eases.

The euro overnight hit a record high of 150.07 yen on electronic trading platform EBS before easing to around 149.60 yen, down 0.1 per cent. The senior dealer with a US asset management firm said Japanese investors had been selling heavily above 150 yen and talk had been circulating of an options barrier at 150.20, leading to a bout of profit taking. Sterling climbed to $1.8985, up 0.3 per cent on the day while the dollar tumbled 0.7 per cent to 1.2287 Swiss francs.

On August 30, the dollar was flat against the euro and slightly higher against the yen, with expectations for relative differences in interest rates between the United States, the euro zone and Japan remaining in the driver’s seat. There was little reaction to a revision of second-quarter US gross domestic product growth and underlying inflation, which were largely in line with expectations, leaving the market focused on a policy meeting of the European Central Bank later this week.

The euro was nearly unchanged against the dollar at $1.2830. The euro also hit a fresh record high against the yen at around 150.43, up 0.6 per cent. The dollar rose 0.4 per cent to 117.10 yen and was steady against the Swiss franc at 1.2278 francs. So far this week, data and events have had little effect on the market’s view that the Federal Reserve sees no urgent need to raise US interest rates again after pausing a more than two-year tightening campaign earlier this month.

The December euro dollar three-month future contract currently reflects an implied US yield of 5.40 per cent but weaker-than-expected US data, particularly on the payrolls report, could reduce that yield and drag the dollar down. Sterling inched up by 0.3 per cent to $1.9045. But the biggest mover on the day was the New Zealand dollar, which rose 1 per cent to a fresh 5-1/2-month high of $0.6505.

On August 31, the dollar crept higher after a batch of the US economic data landed largely in line with expectations, prompting a bout of position squaring before weekend’s keenly awaited US employment report.

The Federal Reserve kept interest rates steady at 5.25 per cent earlier in August, and policy makers have said slowing US economic growth should moderate inflation pressures.

The euro was down 0.2 per cent at $1.2815, off session lows of $1.2786. Earlier, the dollar had slipped against the euro after European Central Bank President signalled that the bank may have to raise interest rates soon to stem inflation in the euro zone. The market showed little reaction to comments from St. Louis Fed Bank President, who said that the price stability must be the US central bank’s primary goal.

The euro hit a record high against yen at 150.78 yen before easing to 150.35 yen, nearly unchanged on the day. The dollar rose 0.3 per cent against the yen to 117.37 yen, just below a one-month high of around 117.50 reached earlier in the session. Many dealers have been frustrated by the market’s inability to push the dollar out of narrow ranges this summer.

Sterling held near two-year highs on a trade-weighted index, buoyed by a survey showing house prices rose sharply in August, which raised expectations for an interest rate hike this year. Against the dollar, sterling hit a three-week peak of $1.9092 before trimming gains to $1.9046.

At the close of the week on September 1, the dollar slipped from a six-week high against the yen as the market awaited the monthly US jobs report later in the session for clues on whether the Federal Reserve will keep interest rates steady. For the past few weeks the dollar has put in a mixed performance, strengthening against low-yielding currencies like the yen but losing ground to higher-yielding ones such as the New Zealand dollar, which struck a new six-month high.

The yen has suffered the most in the hunt for yield, hitting an all-time low against the euro and an eight-year trough versus the pound and Swiss franc as a slew of soft data has reinforced expectations for the Bank of Japan to lift rates slowly.

The BoJ raised overnight rates for the first time in six years in July, but since then officials have stressed that future increases will come only gradually after the hike to 0.25 per cent, easily the lowest among major currencies.