October 23, 2006	Monday	Ramazan 29, 1427

THE rupee/dollar parity showed mixed sentiments this week, trading in a narrow range in the local currency market. There was comfortable dollar supply on account of strong inflows of overseas remittances as well as dollar selling by the returning Pakistanis ahead of Eid-ul-Fitr. At the same time dollar demand remained low. The European single common currency also remained fluctuated versus the rupee.

On the week’s opening day, the rupee slipped in the inter-bank market versus the dollar changing hands at Rs60.64 and Rs60.66 on October 16, down two paisa over previous weekend’s Rs60.63 and Rs60.64. The rupee further showed slight weakness versus the dollar on October 17, when it shed one paisa to trade at Rs60.65 and Rs60.67.

On October 18, the rupee gave up its weakness versus the dollar and recovered five paisa to trade at Rs60.60 and Rs60.62 on handsome inflows of remittances from abroad, which increased by over 23 per cent during the first quarter of current fiscal. On October 19, the rupee moved slightly versus the dollar in the inter-bank market trading at Rs60.60 and Rs60.61.

Range-bound trading was seen in the inter-bank market on October 20, as the rupee did not show any variation versus the dollar, changing hands at Rs60.60 and Rs60.61. Over all, the rupee in the inter bank market recovered four paisa versus the dollar, amid fluctuation, during the week in review.

In the open market, better supply position helped the rupee to gain strength versus the dollar on the first day of the week in review. It picked up eight paisa and trading at Rs60.50 and Rs60.55 on October 16, against previous week close of Rs60.58 and Rs60.63. Increased supply of dollars further boosted the rupee’s value on October 17. The rupee extended its overnight gains versus the dollar in the open market posting fresh gain of 2 paisa for buying and five paisa for selling to trade at Rs60.48 and Rs60.60.

However, on October 18, the rupee in the open market shed two paisa versus the dollar for buying and seven paisa for selling to trade at Rs60.50 and Rs60.67 on October 18. The rupee shed two paisa versus the dollar for buying but gained ten paisa for selling, changing hands at Rs60.52 and Rs60.57 on October 19. On October 20, the rupee maintained its overnight level for buying but lost five paisa for selling, trading at Rs60.52, however, at Rs60.62. During the week in review, the rupee in the open market managed to restrict losses versus the dollar to two paisa.

Versus the European single common currency, the rupee recovered 8 paisa and traded at Rs75.66 and Rs75.76 against the euro on October 16, after the single currency’s fall in the international markets. It had closed last week at Rs75.74 and Rs75.84. On October 17, the rupee further recovered seven paisa changing hands at Rs75.59 and Rs75.69 against the European single common currency on continued fall in the world market.

On October 18, the rupee rising trend versus the euro reversed as it fell by nine paisa versus the single common currency, which traded at Rs75.68 and Rs75.78. On October 19, the rupee further depreciated by four paisa versus euro and traded at Rs75.72 and Rs75.82. The rupee continued its depreciation versus the euro on October 20, losing 44 paisa at Rs76.16 and Rs76.26. Over the week, the rupee in the open market lost 60 paisa against the European single common currency.

In the international financial markets, the dollar fell broadly on October 16, on profit-taking following last week’s sharp gains, while the yen strengthened against the dollar and euro after Russia’s central bank said it planned to increase its Japanese currency reserves. With Federal Reserve speakers providing little new insight on the outlook for the US economy or interest rates, some traders trimmed their dollar holdings ahead of inflation data later this week.

Most market players expect producer and consumer price data to point to only modest inflationary pressures. But analysts said they were alert to the risk of a stronger reading. The yen gained after Russia’s first deputy central bank chairman, said the bank had started buying yen for its reserves, aiming to bring the Japanese currency’s share to “several per cent” from close to zero now. Russia boasts reserves of almost $270 billion, and its coffers have swelled more than 50 per cent this year on record high oil prices.

While the announcement gave the yen a short-term boost, analysts said it was unlikely to overturn the recent trend of speculators selling yen for higher-yielding currencies in so-called “carry trades.” “The impact of Russia’s suggestion to hold JPY as a reserve currency is likely to be brief and limited to a psychological impact.

In mid-day trading, the dollar was down 0.43 per cent at 119.09 yen, retreating from last week’s 10-month high of 119.88 yen. The euro was down 0.31 per cent at 149.26 after hitting a one-week low of 148.98 yen. The euro was up slightly at $1.2530, not far off a near 3-month low of 1.2481 hit on October 13 after upbeat US retail sales and consumer sentiment surveys pushed the pair through key levels. Sterling rose 0.27 per cent to $1.8607.

On October 17, the dollar gave back some of the previous two week’s gains after mixed economic data did little to clarify the direction of US interest rates. The combination of mixed inflation data, strong fund flows into the United States and weak industrial production data left the dollar broadly lower in the US session as dealers lightened long dollar positions ahead of more key inflation data later in the week. Waning expectations of an interest rate cut had helped the dollar gain ground against major currencies in recent weeks. Lower rates would reduce the dollar’s competitive edge among overseas investors against higher-yielding currencies.

The euro gained nearly 0.1 per cent against the dollar to trade at $1.2541. Some of the dollar selling was because the euro has not been able to get below the key level of $1.2480, which could trigger more dollar gains. The dollar fell nearly 0.3 per cent against the yen, trading at 118.71 yen. Sterling rose 0.5 per cent to $1.8704, while the dollar fell 0.3 per cent against the Swiss franc to 1.2668 francs. The dollar rose against the Canadian dollar after the Bank of Canada kept interest rates steady, as expected, but revised down its economic growth forecasts and it forecast a decline in inflation. The US dollar last traded up 0.1 per cent at C$1.1384.

On October 18, the dollar was little changed after a mixed bag of economic data failed to push the currency through key technical levels, spurring a bout of profit-taking that pared earlier gains. The dollar had initially gained after reports showed a key US inflation reading came in as expected and housing starts rebounded, reinforcing a view that interest rates are not headed lower soon. Data also showed that new building permits fell to near a five-year low, however, tempering enthusiasm over a 5.9 per cent rise in September’s new housing starts.

The euro was barely changed against the dollar, trading at $1.2532. Failure of the euro to break below $1.25 has been a barrier to dollar gains, strategists said. The dollar rose nearly 0.3 per cent against the yen, trading at 118.90 yen. The dollar index, which measures the greenback against a basket of currencies, rose a scant 0.02 per cent to 86.89. The dollar’s late reversal also comes amid continued uncertainty about the course of US interest rates. Most investors are looking for the Federal Reserve’s next move to be a cut from the current 5.25 per cent rate, after 17 straight rises to June 2006.

Sterling failed to maintain any strength from minutes of the Bank of England’s October policy meeting which showed the two newest members of the Monetary Policy Committee, voted for a rate hike from the current 4.75 per cent. Sterling fell against the dollar 0.1 per cent to $1.8678. Analysts said a smaller-than-expected rise in average earnings in the three months to August eased concerns about British inflation and dampened expectations for interest rate tightening.

Earlier the yen had climbed to a 10-day high versus the dollar and three-week peak against the euro in late Tokyo trade after business daily reported the Bank of Japan was concerned about carry trades, in which investors borrow yen cheaply to invest in higher-yielding assets overseas. A BoJ spokesman told Reuters the central bank was not specifically beefing up its monitoring of such carry trades. The euro last traded around 149.04 yen.

On October 19, the dollar slumped after a survey showed a surprise fall in business activity in the US Mid-Atlantic region in October, renewing worries about the strength of the US economy. Failure of the dollar to break through key technical levels earlier in the week also prompted profit-taking by investors who had bought dollars earlier this month.