Best Financial Markets Analysis Article Summary: Performance of US dollar against G-7 currencies continues to remain key driver of currency future movement in India. March month ended with wild swing in global currencies largely due to events and policy actions by major economies. The rupee jumped against US dollar in the middle of month as a result of announcement by US to buy bonds but failed to sustain at higher level as strong demand from importers emerged. Rupee is more likely to consolidate at 50-52 range in near term.

Forex Market Analysis: The spot Rupee jumped up to 50 level in the middle of month after US announced bond buy program. However, rupee failed to sustain at higher level due to strong dollar demand from importers and return of risk aversion after U.S. Treasury Secretary Timothy Geithner said that the banks need more help on 30th March.

India’s rupee was supported by strong equity market performance during the month on speculation that foreign fund inflow will increase into equity market. Global equities reversed down trend on hope that US problem will be over soon as a result of US toxic assets cleanup plan. US indices Dow Jones and Asian benchmark MSCI Asia Pacific Index ended with monthly gain of 7.73% and 7.63% respectively. Sensex jumped to close at 9708 on 31st March, up 9.19% on monthly basis.

Rupee lost 3.27% against Euro on monthly basis due to strong performance of Euro against US dollar. US Dollar Index closed sharply lower at 85.43 off 3.07% during the month.

Call and Money Market Overview:

We are initiating this section in our reports as forex and call/money markets are closely interlinked.

Government Borrowing; Concerns about the government's borrowing plans are apparently in the driver's seat in the bond markets. During month, the government declared plan to sell 2.41 trillion rupees ($47 billion) of bonds in the first half of 2009/10, two-thirds of its target for the fiscal year that starts on April 1. To soothe investors' nerves over government fund raising plan, RBI announced to buy back Rs 80,000 crore ($15.6 billion) of bonds between April and September, on top of intervention bond maturities of 420 billion rupees in the period. Market players are now watching how both plans are implemented in terms of structure and exact time table.

Call and Money Market: The spread or futures premium on the US dollar in the nearmonth three contracts shot up significantly towards end of month period, as rupee liquidity has come under pressure. The spread between futures contract that used to be 10 paisa per month increased to as high as 25 paisa. Treasury officials of banks attribute increase in premium to higher call rate in interbank market due to year end squeeze in liquidity.

Let us understand how banks make use of an arbitrage opportunity in the currency forward market and call rate in money market. Banks borrow rupee in call market (when rates are lower) and convert into dollars at the spot rate and hedge the same by selling dollars in forward contract at a premium to earn forward premium plus interest on dollar lending in the market. Therefore, call rate and forward premium on currency are positively correlated and affect each other.

Technical Analysis:

The medium term trend for the rupee is still down. The trend may reverse only on a strong move above 49.70 level. Next medium term target will be 48.80.

However, there are higher chances of sideways movement between 50 and 52 for sometime until any major event triggers breakout of range. The very short-term outlook on the currency is neutral and expected to take clue mainly from equity market.

Important note: current market is moving based on events and policy announcements and therefore, any longer term prediction is risky. Therefore, traders should take daily call for any trading strategy while keeping eyes on important announcements in the market.

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Comments

Chetan
02 Apr 09, 08:59

Abt uk currency

I satisfied with you'r discription i just know abt the current currency uk pond rate in india

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