DOWNTREND persisted in the rupee/dollar parity in the local currency market in the first week of 2007, as the dollar started the New Year on bearish note with the euro rising to a record peak against the Japanese yen and a near seven-year high versus the Swiss franc.
The week commenced on a bearish note, as dollar demand in the local market was high. Importers and buyers were seen making hectic buying of dollars to meet the payment requirements in the opening session of the New Year.
Interbank market was closed for three days from January 1 to January 3, 2007 on account of Eid-ul-Azha as well as Bank Holiday. The rupee in the inter bank market had closed last week at Rs60.90 and Rs60.92 against dollar. When the market reopened after observing a long weekend, the rupee failed to show any improvement against the dollar, as rupee weakness versus the dollar persisted in the first session of the New Year. It shed three paisa over the previous week close and traded at Rs60.93 and Rs60.95 on January 4.
The rupee continued its overnight weakness in the interbank market on January 5, dropping four paisa against the dollar to trade at Rs60.97 and Rs60.99. Rising demand for dollars continued to push the rupee down as it has lost modestly since the week started. During the week in review, the rupee in the inter bank market lost seven paisa against the US currency.
Currency trading in the open market resumed on January 3, after observing a long weekend on account of Eid-ul-Azha, when the value of rupee dipped against the American currency by ten paisa on the buying counter and by another 15 paisa on the selling counter due to high corporate demand for dollar. The dollar was seen changing hands at Rs60.65 and Rs60.75 in the first session of the New Year 2007, after closing 2006 at Rs60.55 and Rs60.60.
The rupee further extended its weakness versus dollar and shed five paisa more trading at Rs.60.70 and Rs.60.80 on January 4. The downtrend in rupee/dollar parity persisted on January 5, when the rupee further extended its slide and shed five paisa versus the dollar, trading at Rs60.75 and Rs60.85. This week, the rupee in the open market lost 20 paisa against the dollar.
Against the European single common currency, the rupee lost 40 paisa and traded at Rs79.60 and Rs79.70 on the opening day of the week against previous week close of Rs79.20 and Rs79.30. The rupee, however, gained in terms of the euro changing hands at Rs79.30 and Rs79.40 on the second day of trading, as its weakness versus the dollar in the world markets helped the rupee to strengthen against the single European currency
On the third day of trading, the euro came under extensive pressure, losing 60 paisa more in terms of the rupee, changing hands at Rs78.70 and Rs78.80. Thus the rupee managed to recover 60 poise versus the European single common currency towards the end of the week. During the week as a whole, which was shortened by three days on account of Eid and New Year Holidays, the rupee gained 50 poise over the euro.
In the international financial markets, trading in currencies remained suspended on January 1, being New Year Day Holiday. The dollar, however, declined across the board in the opening session of the New Year, while the euro rallied as investors began the New Year hunting currencies with rising yields. The dollar's losses were most pronounced against European currencies such as the euro, sterling and the Swedish crown.
Liquidity was significantly thinned on January 2, by a market holiday in Japan and closure of the US stock market to commemorate the death of former President Gerald Ford. Currency trading also wound down early in the United States, analysts said. The euro was up 0.6 per cent at $1.3274 in New York, adding to an 11.5 per cent gain against the dollar in 2006, its best performance in three years.
The euro also rose to yet another record peak against the Japanese yen, rising as high as 157.90 yen. It also rose to a near seven-year high of 1.6121 Swiss francs, according to Reuters data. The Swiss franc and the yen are still fairly weak versus the euro, indicating that risk appetite in the market is high and carry trades are very much in vogue. The dollar was down 0.2 per cent at 118.85 yen.
Sterling rose against the dollar gathering strength as the new year got under way after ending 2006 up nearly 14 percent - its strongest annual performance versus the greenback in a decade and a half. Two interest rate hikes from the Bank of England in the second half of 2006, coupled with strong data that boosted expectations for another rise to 5.25 percent early this year, has helped sterling to outperform in recent months.
On January 3, the US dollar advanced broadly hitting two-month highs against the yen, after a survey showed the US factory sector expanded in December, defying forecasts of another modest contraction. The dollar jumped after the Institute for Supply Management said its manufacturing index climbed to 51.4 from 49.5 in November and above the 50 threshold that separates expansion and contraction.
The euro was trading down 0.9 per cent on the day at $1.3159, its biggest one-day decline since mid-July of last year. Meanwhile, sterling tumbled 1.2 percent to $1.9495, its biggest one-day decline since July 2005. The dollar was up 0.5 per cent at 119.35 yen after reaching as high as 119.68.
Against the dollar, sterling's losses were amplified after a stronger-than-expected US manufacturing survey from the Institute for Supply Management.
It fell more against the dollar than the euro due to lack of liquidity in the market. It was down 1.15 per cent at $1.9508, just off an earlier two-week low of $1.9500 and more than two cents below one-month highs scaled in Asian trading. It was on track for its biggest one-day loss against the dollar since mid-July 2005, when it fell 1.28 percent.
On January 4, the dollar climbed for the second straight day, gaining support from a recent run of upbeat economic data that has lowered expectations the Federal Reserve may cut interest rates in the coming months. It has also gained support this week from falling oil prices, some analysts said.
The dollar gained across the board, except against the yen. The Japanese unit was bolstered by the growing view that the Bank of Japan may raise interest rates again as early as this month. The euro was down 0.6 percent at $1.3080 in New York trade. It was the worst two days for the euro against the dollar since April 2006. The dollar fell 0.2 per cent against the Japanese currency to 119.07 yen. The dollar also rose 0.5 percent to 1.2329 Swiss francs
Meanwhile in Tokyo, the dollar hovered near a 2-1/2 month high against the yen before the release. The dollar rallied after a survey showed a surprise expansion in US factory activity in December and reinforced expectations for a soft landing in the economy. The dollar was at 119.40 yen little changed from late US trading on January 3, when it rose to 119.68 yen, the highest since mid-October.
The euro was nearly flat at $1.3170 after falling 0.9 per cent a day earlier, its biggest one-day decline since the middle of last July. Sterling rallied against the euro and recovered from five-week lows against the dollar following strong UK data. The data helped sterling rebound from early falls against the euro. It was at 67.34 pence per euro, up nearly 0.2 pe rcent on the day.
Sterling also bounced back against the dollar to $1.9467, down 0.2 per cent on the day, compared with an earlier fall of 0.55 per cent. The pound fell 1.2 per cent against the dollar on January 3, the biggest such drop in the pair since July 2005. Broad dollar strength capped the pound's gains, however.
At the close of the week on January 5, the yen surged higher across the board, pulling further away from 2-1/2-month lows against the dollar on talk that the Bank of Japan could bump up interest rates as early as this month. Traders said the yen was also bought against the euro on caution that the Japanese currency had been pushed too low too fast in a run of record lows last year, prompting the high-yielding Australian and New Zealand dollars to tumble against the yen.
Expectations that Japanese rates could rise again soon were reinforced at the start of the week when the Yomiuri newspaper reported that the BoJ might consider a hike from the current 0.25 per cent at a two-day policy meeting that starts on January 17.
The US currency fared better against European currencies, with the euro dipping to $1.3070 from around $1.3085, while sterling struck a fresh one-month low of $1.9351 The dollar found strength against currencies other than the yen ahead of the much-awaited non-farm payrolls figures. The data should offer insight on whether the Federal Reserve will cut rates from the current 5.25 per cent in the coming months to help shore up a slowing economy.
Sterling hit a six-week low against a broadly rallying dollar following stronger than expected US non-farm payrolls data. The pound had already weakened earlier in the session, hurt by data from mortgage lender the Halifax showing a one per cent drop in British house prices for December compared with the previous month. This led some in the market to be less positive on the prospects for sterling.
DOWNTREND persisted in the rupee/dollar parity in the local currency market in the first week of 2007, as the dollar started the New Year on bearish note with the euro rising to a record peak against the Japanese yen and a near seven-year high versus the Swiss franc.
