November 27, 2006	Monday	Ziqa'ad 5, 1427

STRONG dollar demand this week exerted downward pressure on the local rupee in the local currency market, amid fluctuations. The dollar is showing its muscles in terms of the rupee, heading towards the new high to touch an important mark of Rs61. The rupee has already crossed Rs78 barrier versus the European single common currency.

In the inter-bank market, the week commenced on a negative note as the rupee failed to maintain its weekend's firmness and lost six paisa, changing hands at Rs60.88 and Rs60.89 after ending last week at Rs60.82 and Rs60.83. There was heavy demand for dollar on November 20. Heavy rush of importers to by dollars for covering their payments bills was observed in the local currency market during the day.

However, the rupee managed to recover from its overnight weakness on the second day of the week and gained four paisa against the dollar on the back of slight improvement in the dollars' supply position, trading at Rs60.83 and Rs60.85 on November 21. The rupee maintained its rising trend in relation to the dollar on the third day as it managed to extend its firmness by picking up one paisa to trade at Rs60.82 and Rs60.84 on November 22.

On the fourth day of trading, the rupee gave up its weakness in the inter bank market, gaining five paisa despite strong dollar demand. But the rupee managed some gains on easy supply of the greenback and traded at Rs60.77 and Rs60.79 on November 23. The rupee was able to continue its rise due to strong supply of the US dollars on November 24. It maintained its surge in relation to the dollar in the inter-bank market, gaining four paisa to trade at Rs60.74 and Rs60.75 on the fifth day of the week in review. During the week, it managed to restrict its decline against the dollar and recovered ten paisa in the inter-bank market.

In the open market, the rupee managed to gain six paisa in relation to the dollar for buying and four paisa for selling to trade at Rs60.82 and Rs60.90 on November 20, as against last week close of Rs60.88 and Rs60.94. The rupee in the open market lost its overnight firmness versus the dollar on November 21, when it shed seven paisa for buying and five paisa for selling and traded at Rs60.89 and Rs60.95.

For the second day in a row, the rupee drifted lower losing two paisa on the buying counter, while it remained unchanged on the selling counter, changing hands at Rs60.90 and Rs60.95 on November 22. However, the rupee rose by five paisa against the dollar and traded at Rs60.83 and Rs60.90 on November 23. On November 24, the rupee rose by three paisa in relation to the dollar for buying and five paisa for selling to trade at Rs60.80 and Rs60.85.Over the week in review. It managed to recover two paisa amid fluctuations.

Versus the European single common currency, the rupee continued its weekend sliding trend on the first day of the week in review, shedding 13 paisa to trade at Rs77.88 and Rs77.98 on November 20, after closing last week at Rs77.65 and Rs77.75. Against the euro, the rupee managed to recover 14 paisa versus on the week’s second day and traded at Rs77.73 and Rs77.83. The rupee extended its slide crossing Rs78 barrier on November 22. It lost five paisa and traded at Rs78.00 and Rs78.10 against the European single common currency on the third day of the week in review.

On the fourth trading day, the rupee extended its weakness versus the euro. Sharp decline of 55 was recorded in the value of rupee, which was seen changing hand at Rs78.50 and Rs78.60 on November 23.The rupee managed to recover from its sharp decline overnight and gained 33 paisa in terms of the euro, changing hands at Rs78.50 and Rs78.60 on the fifth trading day. This week the rupee lost 62 paisa against the European single common currency.

In the international financial market, the yen fell broadly on the opening day of the week, hitting a record low against the euro, amid disappointment after a finance ministers' meeting over the weekend did not talk the Japanese currency higher. Continued weakness in the yen and continued support for the dollar is expected to be running themes this week, especially with no apparent obstacles to the carry trade.

Some analysts prior to this weekend's G20 meeting had said there was a risk the dollar would weaken if officials chose to focus on the US current account deficit's contribution to global imbalances. However, G20 finance chiefs did not mention the US shortfall - a dollar-bullish turn of events. In New York, the euro was little changed from previous week close and traded at 151.22 yen after earlier climbing as high as 151.68 yen, the strongest since the European currency's launch in 1999. The dollar was up around 0.15 percent to 118.06 yen on November 20. The euro was slightly lower on the day at $1.2812. The New Zealand dollar, the highest-yielding among the world's most-liquid currencies, rose 0.8 percent to 79.05 yen. Volume during the New York session was light without any first-tier US economic data and due to the Thanksgiving holiday in the United States. Sterling rose against the dollar after data showed a robust housing market in England and Wales and a rise in UK mortgage lending. It was also up 0.1 per cent at $1.8977.

On November21, the dollar edged lower in light, mostly technical trading in the absence of key US economic data, but traders kept an eye on the yen after it weakened the previous day. Volume was thin ahead of the US Thanksgiving holiday. A so-called carry trade, in which investors borrow in low-yielding currencies, particularly the yen, to invest in high-yielding ones, showed no signs of slowing. The low-yielding yen has been under pressure, with investors selling it for higher-yielding currencies because the Bank of Japan is expected to raise interest rates only gradually.

In New York, the euro was steady at 151.34 yen, just below previous day’s record high of around 151.68 yen. The dollar edged lower against the yen at 117.85 yen as the White House lowered its forecast for US economic growth this year and next, saying the economy is moderating. Analysts and traders also said the dollar came under pressure earlier on speculation that the October unemployment rate could be revised higher. The talk died down after an assistant commissioner at the US Bureau of Labour Statistics, dismissed the rumour.

The yen fell on November 20, after a weekend meeting of the Group of 20 economic powers in Australia yielded few comments on the yen's weakness or on carry trades. Some analysts said the build-up of short positions in the yen - in which investors bet the currency, will drop - potentially left it vulnerable to a sharp correction. The biggest mover against the yen after the G20 meetings has been the New Zealand dollar - the highest-yielding currency among the most liquid currencies in the world. Against the US dollar, the New Zealand dollar was flat at US $0.6707. The euro also was slightly higher against the dollar at $1.2845. Sterling edged higher against the dollar and euro supported by data that showed British industrial orders for November were not as weak as analysts had expected. Euro was trading down a little at 67.53 pence and sterling was up a touch at $1.8988.

On November 22, the dollar fell to a 5-1/2-month low against the euro and a two-month low against the yen as thin trading volume exaggerated the impact of souring views on the greenback. Investors sold dollars overnight to pare risk within their portfolios ahead of holidays on November 23 in the United States and Japan. A softer-than-expected reading of US consumer sentiment in November added to the dollar's weakness. Dollar bears were all over the market, even ahead of the holidays.

The euro had surged to its highest since June 5, at $1.2957, within reach of the top of its 1-1/2-year trading range at $1.2980, according to Reuters data. In New York it traded around $1.2936. The dollar was down about one per cent at 116.44 yen, near a two-month low, its largest daily decline since late June. The key level for many dealers is $1.30 in the euro, a level not touched since April 2005. While many dealers said this week's dollar weakness is the result of selling by short-term investors, a break of the $1.30 level could draw out long-term accounts such as institutional investors.

Some market participants said so-called carry trades - where investors borrow in a low yielding currency such as the yen to buy a higher yielding one - were being unwound ahead of the US and Japanese holidays, the result perhaps of a pull-back in risk taking. Indeed, the currencies that rose the most against the dollar were those that has the lowest yields among the most liquid currencies in the world: the yen, Swiss franc and Swedish crown.

The dollar fell 1.1 per cent against the Swiss franc to 1.2266 francs, a 2-1/2-month low. Against the Swedish crown, the dollar dropped to the lowest since April 2005, at 7.0039 crowns. Also while the New Zealand dollar - the highest yielding currency among the most liquid - was up about 0.2 per cent against the dollar at $0.6710, it was down 0.8 per cent against the yen, at 78.34 yen. Sterling rallied against the dollar as the greenback's steep decline against all major currencies overshadowed the release of minutes from the Bank of England's last policy meeting.

The US markets were closed for the Thanksgiving holiday and Japanese markets were shut for the Labour Thanksgiving holiday on November 23. In trade thinned by the holidays, the euro got a lift after Germany's Ifo business climate index rose to 106.8 in November, beating expectations for a fall to 105.2.