India Forex - Forex Trading in India

India Friday 02 April 2010 - A Chinese economist has called on the government to put a $800 billion ceiling on the burgeoning forex reserves and invest the rest of the current over $2 trillion in overseas investments to diversify from huge investment in the US Treasury bonds.
“The country should diversify its currency portfolio for foreign exchange reserves and reduce the share of US dollar- dominated assets for risk control purposes,” former Vice-Chairman of standing committee of the National People’s Congress, Cheng Siwei said at Fudan University yesterday.

China’s foreign exchange reserves, the world’s largest, climbed $453 billion in 2009 to $2.4 trillion.

China is also the largest owner of the US Treasury securities and held $889 billion of the securities by the end of January this year after scaling it down from $894.8 billion in December 2009.

Yi Gang, head of the State Administration of Foreign Exchange, said the country’s diversified allocation for foreign exchange reserves mainly include the US dollar, the euro, and the Japanese yen, without providing the currency composition of the holdings.

However, analysts maintain that over 70 per cent of the forex reserves are in the US dollar-denominated securities.

“We could maintain the scale of forex reserves by increasing the overseas purchasing volumes to slash the trade surplus, and also spur more direct investment abroad,” Cheng was quoted as saying by the official China Daily.

Talking about mounting pressure from countries like the United States on yuan appreciation, Cheng said, China should keep the yuan exchange rate “basically stable at reasonable levels” but with more flexibility.

“Don’t make the valuation of the Chinese currency too political, the rate fluctuation will directly impact the global trade framework and impede the progress of the global economic recovery,” he said.

India Friday 12 March 2010 - With economic policy stimuli already at full tilt, no government wants an overvalued exchange rate to slay recovery, and the rival “soft currency” needs are producing some elaborate rhetorical jousting.

The problem is that major exchange rates — at least those between the developed G4 economies of the United States, euro zone, Japan and Britain — are largely market determined and difficult to control.

There’s no magic wand to conjure up devaluation and the monetary and fiscal levers that could possibly engineer a free-floating depreciation are near exhausted.

G4 interest rates remain near zero. New money and liquidity taps have been switched to gushing. And soaring government debts show how much has been spent on fiscal boosts or bank bailouts.

With these orthodox policy switches close to maximum power, keeping currencies competitive in the scramble for scarce export markets is the next trick and a more subtle approach is needed.

Short of direct open-market intervention — already being conducted by the Swiss and considered by Japan — all that’s left to policymakers is nuancing of speeches and market suasion.

But nudging markets can be a dangerous game, not least because there’s a risk of panicking foreign creditors at a time of ballooning national debts.

And so the “race to the bottom” is more like a sideways shimmy.

TALKING THE TALK

The verbal record suggests that, at the very least, none of the main protagonists want rising currency rates — a factor that may influence the timing of their policy exit strategies.

U.S. officials say publicly they are not relying on a low dollar to meet President Barack Obama’s ambitious pledge to double exports over the next five years but few economists believe this is consistent with an appreciating greenback.

At the same time, Treasury Secretary Tim Geithner, self-confessed author in 1990s of the now questionable “strong dollar” policy, still travels the world assuring investors his government is not seeking to devalue its way out of its debts.

Euro zone governments were publicly fearful of the euro’s steep climb against the dollar over the past 12 months but have been handed a silver lining to the Greek debt saga in the form of a near 10 percent euro retreat as the crisis intensified.

India Wednesday 10 March 2010: The dollar strengthened on Tuesday against the euro and the British pound as credit ratings agencies sounded warnings on Europe, while a Labor Department report showed that US employers are creating more jobs than they are cutting.

In late New York trading on Tuesday, the 16-nation euro dropped to $1.3590 from $1.3633 late Monday.

The British pound fell to $1.4987 from $1.5072 after the U.K. said its trade deficit widened in January because of a steep drop in exports.

But the dollar slipped to 89.96 Japanese yen from 90.32 yen. The yen, along with the dollar, tends to benefit from safe-haven buying.

Greek Prime Minister George Papandreou was scheduled to meet Tuesday with President Barack Obama and the International Monetary Fund in Washington. Papandreou said that he would press the U.S. to impose stricter regulations on hedge funds and currency traders, which he believes aggravated Greece’s debt crisis.

Greece’s recent debt troubles have roiled credit markets in the 16 countries that use the euro and threatened the stability of the region’s monetary union.

Credit ratings agency Fitch Ratings said a sovereign debt default in one of the 16 nations that use the euro was still possible, said Geoffrey Yu of UBS in a research note.

Moody’s Investors Service said British banks could be downgraded as the U.K. reels in public support for them, while Fitch said the British government’s plan to reduce its deficits is “slow.”

“The overall weight of this particular problem in Europe _ the Greek problem _ is not going to go away,” said Joseph Trevisani, chief market analyst at FXSolutions.

European officials are urging Obama to join them in calling for more regulation on trading that they claim worsened debt problems in European countries, and German Chancellor Angela Merkel suggested setting up a bailout fund to help euro-using countries avoid defaults.

But those efforts may not provide much support for the euro. Policing such trading across international markets would be very difficult, Trevisani said. Meanwhile, any regional fund would take a long time to set up.

Meanwhile, job openings in the U.S. rose sharply earlier this year to 2.7 million, the highest total since February 2009, the Labor Department said Tuesday.

Markets also took notice as the Fed on Monday took another step to drain emergency liquidity from markets, also a sign that financial conditions are improving.

The central bank has been slowly withdrawing its emergency lending programs, put in place during the financial crisis to help keep credit flowing. At the same time, it has continued to say that it will leave interest rates at their current rate near zero as the economic recovery from the recession remains weak.

Higher interest rates can boost a currency as investors transfer funds to where they can earn higher returns.

“The apparatus for an eventual exit is clearly being assembled,” Yu said. “Signs that the Fed is readying itself for eventual policy normalization should remain beneficial for the dollar.”

In other late trading, the dollar edged down to 1.0262 Canadian dollars from 1.0276, but rose to 1.0759 Swiss francs from 1.0734 francs.

India Friday 5 March 2010 - In just a few months, the market’s perception of the U.S. dollar has turned 180 degrees. Last year, the world was worried about a dollar crisis as the ballooning U.S. budget deficit sparked fears the greenback may lose its status as the international reserve currency.

In recent weeks, however, the dollar woes have been overshadowed by fiscal instability in Europe and problems elsewhere. Against a basket of currencies, the greenback has gained more than 9 percent since its lows in November.

Many analysts expect the dollar to stay firm against most currencies this year. While the U.S. deficit is still large, prospects for recovery appear better in the United States than in Europe and Japan. That, along with the uncertainty surrounding the euro zone, should boost the attractiveness of the greenback as an investment.

“The fiscal negatives are a lot less from the United States now than what they were a year ago,” said Aroop Chatterjee, currency strategist at Barclays Capital in New York. “Sovereign risk is less of an issue for the dollar and more of an issue for the euro area.”

Sentiment has turned to such an extent that the dollar was not hurt by recent data showing China sold a record amount of U.S. government debt in December — news that would probably have pressured the currency in the past.

FAR FROM ROSY

To be sure, the U.S. fiscal deficit, which is projected this year to hit $1.56 trillion, or 10.6 percent of gross domestic product, remains a negative influence. Many U.S. states, such as California, also face difficult budget decisions.

But economists say it’s not the absolute level of U.S. debt that matters, but rather its relative position. With the euro zone, UK, and Japan all plagued by soaring government debt, the dollar’s resilience reflects a realization that it’s simply the best of a bad bunch.

There’s also scope for improvement on the U.S. fiscal front, especially if the recovery is stronger than anticipated, which would reduce further stimulus spending and boost tax revenue.

Nick Bennenbroek and Vassili Serebriakov, currency strategists at Wells Fargo, said data in the last 30 years do not show a “reliable statistical relationship” between budget deficits in the Group of 10 rich countries and their exchange rates.

During President Ronald Reagan’s first term in the early 1980s, the rise in the budget deficit didn’t hurt the dollar, which was supported by a tighter monetary policy and higher domestic interest rates. Conditions are different now, obviously - monetary policy is looser, rates are lower, and deficits are even larger.

THE TURN IN LIBOR

If the U.S. recovery is sustained, rates - both those set by the Federal Reserve and market rates - may continue to help the U.S. dollar in the coming months.

Yields on 10-year U.S. Treasury note were at 3.614 percent on Tuesday, higher than those of 10-year German government bonds at 3.11 percent.

In addition, key short-term U.S. dollar rates now match yen levels in Japan. Months of lower dollar rates helped fuel so-called carry trades, where investors sold dollars to fund purchases in other currencies and assets.

The three-month dollar-denominated London interbank offered rate was fixed at 0.2519 percent Tuesday, compared with the yen-denominated 3-month LIBOR rate of 0.2531 percent. If dollar rates continue to rise, the yen will take a greater share of the funding trade that weakened the dollar in late 2009.

Since the fortunes of major world markets seem to have shifted for now, renewed economic weakness may still benefit the greenback, as a pullback leads to demand for U.S. currency.

“There’s a little more uncertainty about the global recovery, and that’s an environment where the dollar tends to do well,” said Sophia Drossos, co-head of global currency strategy at Morgan Stanley in New York. “The U.S. cyclical data is outperforming other major economies like the U.K. and Europe.”

Tony Crescenzi, market strategist and portfolio manager with PIMCO in Newport Beach, California, said with the euro in duress, global reserve managers will have no choice but to buy U.S. Treasuries because “there is no other bond market for the world to house its $8 trillion of reserve assets.”

While China sold some $34 billion Treasuries in December, it added a net $4.6 billion of long-dated Treasury bonds. Some analysts said this likely reflected falling safe-haven demand. Because of the crisis, China accumulated a long position of more than $210 billion in short-term debt by May 2009, according to the U.S. Treasury; it now has just $70.1 billion.

China’s move to the long end of the curve could be a sign of confidence in the U.S. economy. India, Singapore and Korea also cut short-term Treasury holdings, Treasury data showed.

Purchases of U.S. debt by foreign countries like China have helped keep U.S. Treasury yields low over the past years. Some investors fear waning interest from overseas would lead to a spike in U.S. rates and cripple the economy, but that has not happened.

India Thursday 28 January 2010: The dollar hit a six-month high against the euro on Wednesday after the Federal Reserve said it intends to end some emergency lending and asset-buying programs and sounded slightly more upbeat on the US economy.

The euro fell below $1.40 for the first time since July after the Fed said US economic activity had strengthened.

And while the central bank said it will keep interest rates low for some time yet, a dissenting vote from one official suggested pressure was building for tighter policy, which would boost returns on dollar-denominated assets.

“The statement is overall a positive one. The Fed is saying they have enough confidence in the markets to let the liquidity measures expire as expected,” said Kurt Karl, chief US economist at Swiss Re in New York.

In particular, analysts said the dollar got a boost when the Fed and other major central banks said they would end emergency dollar lending operations on Feb 1.

“That takes away dollars in circulation and that should be dollar-supportive simply because of supply and demand,” said Greg Salvaggio, senior vice president at Tempus Consulting in Washington.

According to Reuters data, the euro fell to $1.3994, its lowest since July 15. It traded above $1.51 in late 2009.

Worries about Greece’s fiscal health also weighed on the currency, which last changed hands at $1.4018, down 0.4 percent on the day.

The dollar also rose 0.4 percent to 90.01 yen, wiping out earlier losses that took it as low as 89.15 yen. It was also up 0.4 percent at 1.0500 Swiss francs, while the British pound was up 0.1 percent at $1.6164.

The Fed’s board voted 9-1 to keep rates near zero for an extended period, with Kansas City Fed President Thomas Hoenig dissenting.

“Going forward, that’s more of a dollar positive scenario since that suggests in coming meetings, we could see that phrase (extended period) removed from their statement,” said Joe Manimbo, a currency trader at Travelex Global Business Payments in Washington.

India Saturday 02 January 2010: The US dollar lost much of its luster over the past decade as its status as a global reserve currency was challenged and its value Why currency keeps fluctuating On the foreign exchange market, the euro was virtually on parity with the dollar at December 31, 1999 but a decade later the greenback has fallen by 30 percent against the single European currency.

The euro, launched on January 1, 1999, fetched around 1.43 dollars on Thursday, the last trading day of the year.

The dollar’s rapid fall against the euro is ironic as the US Federal Reserve had to come to the rescue of the faltering single European currency in September 2000 as part of a coordinated market intervention by major central banks.

The greenback also faced the same misfortune against other key currencies.

While it was roughly stable against the British pound, it has lost nearly 10 percent against the yen and a hefty 35 percent against the Swiss franc in the past decade.

The trade-weighted US dollar index, a measure of the value of the US dollar relative to other world currencies, has lost 11 percent in the past 10 years.

India Thursday 31 December 2009: The share of global foreign exchange reserves held in US dollars declined in the third quarter of 2009 even as overall world reserves Why currency keeps fluctuating swelled to a record $7.5 trillion, International Monetary Fund data showed on Wednesday.

The IMF data showed the dollar’s share of the roughly $4.4 trillion of world reserves of which the composition is known fell to 61.6 percent between July and September, from 62.8 percent in the prior quarter.

The euro’s share of known reserves edged up to 27.7 percent from 27.4 percent and the yen share rose to 3.2 percent from 3.1 percent, the data showed. Holdings of “other currencies”, a reference to currencies other than the dollar, euro, yen, sterling or Swiss franc, showed the biggest shift.

India Tuesday 22 December 2009: The dollar is rallying in tandem with stocks and commodities for the first time since before Lehman Brothers Holdings’ bankruptcy last year sparked the financial crisis, signalling the worst may be over for the greenback. The currency, equities and raw materials are on pace for their first simultaneous two-month gain since 2008 as the US Dollar Index rises the fastest in 10 months. The gauge has moved in the opposite direction of either the S&P 500 Index or the Reuters/Jefferies CRB Index of commodities for 15 months straight and diverged from both in all but four.

Correlated trading reflects growing confidence in the US economy and increasing expectations that the Federal Reserve will start draining some of the $12 trillion used to battle the worst global recession since World War II. Until now, the dollar climbed when traders sought protection from turmoil created by the credit freeze that started in 2007. It weakened when they took advantage of record-low interest rates by selling the currency to finance holdings of higher-yielding overseas assets.

The market’s tremendous dollar-negative sentiment is being corrected,” said Adnan Akant, who helps oversee $39 billion and reversed bets against the currency two weeks ago as head of foreign exchange in New York at Fischer Francis Trees & Watts. “The regime is changing, definitely.”

The Dollar Index — which measures its performance against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona — dropped 4.4% this year. Its tendency to fall when stocks rise and vice versa, which has prevailed since Lehman’s September 2008 collapse, is breaking down. Until Dec. 1, stocks and the Intercontinental Exchange currency gauge moved in opposite directions on seven of every 10 days this year. They’re in sync more than half the time this month.

Gaining Gauge
With eight trading days left in the year, the gauge has gained 1.9% since the end of October, while the S&P 500 and the CRB Index added 6.4% and 2.1%, respectively. The last time all rose in a two-month period was April and May of 2008. The three indexes, which haven’t all increased in the same quarter since 2005, also are up since September 30.

Currency strategists are growing less bearish on America’s legal tender versus the euro, predicting it will fall 1.1% next year to $1.45, up from November 30’s weaker $1.48 forecast, median estimates of as many as 47 in Bloomberg surveys show. It will rise 8.6% against the yen, the median of 42 estimates shows. The Dollar Index rose 1.6% last week. Its 4.9% rise from this year’s November 26 low is the steepest since a 17-day climb ended February 2.

Dollar, Yen, Euro
Last week, the dollar gained 1.6% against Japan’s currency to 90.49 yen and 1.9% versus the euro to $1.4338. The greenback is little changed against the yen this year and up 6.4% from its 14-year low on November 27. The dollar is still down 2.6% compared with the euro in 2009, though it strengthened 5.5% since November 25.

Euro speculators reversed course after having more bets on dollar losses than gains for seven months. Wagers by hedge funds and other large speculators that the dollar will gain against the euro outnumbered bearish bets by 16,448 on December 15.

India Saturday 5 December 2009: Friday’s generally upbeat U.S. non-farm payrolls report is unlikely to discourage investors from using the dollar to fund risky bets in higher-yielding assets. Investors, spurred by near-zero U.S. interest rates and easy availability of funds, have borrowed huge sums of money in U.S. dollars in recent months to purchase assets overseas where returns are higher, But some traders said the jobs data forced many market participants to cover short dollar positions on Friday, which may signal the end of trades that blindly sell the dollar on strong economic news in carry transactions.

The dollar gained against major currencies on Friday, pushing the greenback to its best performance against the euro since June. Hover, Most analysts and fund managers said the dollar’s gains could be short-lived and the trend using the dollar to finance carry trades is not about to change.

The use of the dollar as a funding currency has undermined the greenback, which has fallen roughly 7.0 percent so far this year against a basket of currencies. “It’s premature to conclude that the dollar bear market has ended,” said Paresh Upadhyaya, senior portfolio manager, at Putnam Investments in Boston. Upadhyaya helps oversee assets of about $20 billion.

He added that the improvement in the labor market was long overdue because leading indicators such as jobless claims have been on a downward trend anyway for the last several months. It was therefore only a matter of time before this translates into slower job losses. “I think from a longer-term perspective, the Fed will remain concerned about the prospects for deflation into 2010, or at the very least the lack of inflationary pressures and will be very cautious about monetary policy,” Upadhyaya said.

US RATES UNLIKELY TO GO UP FAST

Data on Friday showed that employers cut 11,000 non-farm jobs last month while markets had expected job losses of 130,000. The surprisingly strong report stoked speculation the Federal Reserve may soon have to consider raising interest rates from record lows sooner than initially thought. That would increase returns on dollar assets and make them more attractive again to investors.

Alan Ruskin, chief currency strategist, at RBS Global Banking and Markets said while the jobs report has brought forward the date of the market’s expected Fed tightening by one month, the number is not strong enough to “change expectations that tightening will not begin before the second half of next year.” And even if the Fed does start tightening, interest rates are unlikely to go up that fast.

“It’s almost impossible to see the U.S. returning back to 5.0 or 5.5 percent fed funds rate where it is competitive with the rest of the world,” said Richard Franulovich, senior currency strategist at Westpac said in a recent interview. Aside from a low-interest rate scenario, other analysts said negative factors weighing on the dollar still persist. Steven Englander, chief currency strategist for North America for Barclays Capital, cited the fact that a lot of the central banks would still want to sell dollars because they have accumulated far too much of the currency.

For instance, China said on Friday it would look to diversify its huge foreign exchange reserves across currencies and high quality assets, although the dollar would remain the anchor currency. It also doesn’t help the dollar’s cause that other foreign assets are a lot more attractive. “We do see a lot of capital outflows from the U.S. private sector,” Englander said, and that is not going to change. Concerns about record fiscal deficits, resulting from the United States borrowing hundreds of billions of dollars to resuscitate an economy ravaged by the global financial crisis, have further weakened demand for U.S. assets, making it likely the dollar will weaken further.

India Wednesday 25 November 2009 -
:: Australian Dollar: The Australian Dollar opens lower today against the greenback at 0.9202. The risk appetite that buoyed the Aussie on Monday night evaporated yesterday after news emerged from China that it’s banking regulator issued a stern warning to banks regarding strict adherence to capital requirements or face sanctions. The local unit shed 50 points and hit a low of US92 cents mid-morning on fears the recent lending binge in China could come unstuck and leave banks with an increase in non-performing loans. The sell-off continued when Europe opened taking the currency down to an overnight low of 0.9130. Profit-takers emerged and the Aussie steadily climbed back to US92 cents during the New York session

- We expect a range today in the AUD/USD rate of 0.9130 to 0.9250

:: Great Britain Pound: Pound Sterling opens lower against the greenback today at 1.6585 after Bank of England Governor Mervyn King said the U.K. economy still faces “profound challenges” and that consumer spending is now “markedly lower than it was in the first half of 2008″. The comments weighed on the pound which hit an overnight low of 1.6496 as it leaves the door open for further quantitative easing. Meanwhile, the pound is steady against the Australian Dollar at 1.8000 and higher against the New Zealand currency at 2.2840.

- We expect a range today in the GBP/AUD rate of 1.7900 to 1.8100

:: New Zealand Dollar: The New Zealand Dollar opens lower today at 0.7255. The kiwi’s fall commenced during local trade on Tuesday despite a forecast rise in inflation expectations by the Reserve Bank of New Zealand in its quarterly survey. The unit spent most of the local session in a narrow range between 0.7270 and 0.7300 and was underpinned by a rebound in local equities and another surge in the price of gold. During overnight action, the kiwi resumed its slide hitting a low of 0.7219 during early Europe. There is plenty of support around the US72 cent mark.

- We expect a range today in the NZD/USD rate of 0.7180 to 0.7290

:: Majors: The Euro rose early in the session to a high of 1.4987 against the greenback after the release of German business confidence which increased to a 15-month high in November to 93.9 from 92 in October. Resistance emerged once again around the 1.5000 level after a US consumer confidence report showed an unexpected increase in November. Also released overnight were the minutes from the last Federal Reserve meeting in early November in which officials remained confident that the economic recovery is sustainable, even if employment did not start to pick in the short term. Members also made mention that “very low short-term interest rates, including the possibility that such a policy stance could lead to excessive risk-taking in financial markets or an unanchoring of inflation expectations”. Meanwhile, the greenback slumped to a one-month low against the Japanese Yen at 88.34 after third-quarter GDP in the United States expanded at 2.8 per cent annual pace, slower than previous estimates.