THE RUPEE: all-round decline

The money market turned volatile during the week ended on January 22, 2011 as a result of higher demand of dollars by importers to clear the bills. On the inter-bank market, the rupee drifted lower against dollar, losing 41 paisa for buying at 85.89 and 38 paisa for selling at 85.92.
On the open market, the rupee shed five paisa in relation to dollar for buying at 86.00 and 10 paisa for selling at 86.20. The local currency also dropped Re one versus euro for buying and selling at Rs 115.55 and Rs 116.05.
The rupee resisted sharp fall versus dollar due to increase in supply of the US currency. It was observed that the rupee struggled hard to keep its present value versus dollar. The only factor which helped the rupee was upward trend in foreign exchange reserves.
In fact, it appeared that continued rise in remittances from overseas Pakistanis and significant improvement in export proceeds, mainly from textile sector, aided the reserves to touch record level in the beginning of third quarter of current fiscal year 2010-11. In the first half of current fiscal year, the country received 5.3 billion dollars from workers abroad.
Weak fundamentals, mainly soaring inflation, brought down the purchasing power of the local currency. In the meantime, despite said supportive factors for the rupee, possibility of fall in the value of the rupee could not be ruled out, because if the present pace of remittances discontinued, it may hurt the rupee versus dollar.
The demand for dollar still remains high despite upward trend in exports of textile items and rise in remittances. The importers purchase dollars to clear payments, which causes demand and supply factor. However, it is expected that the rupee may be able to tackle the emerging situation resulting from strong buying of dollars by importers. Recent move by the State Bank of Pakistan (SBP), in which it removed a 25-month ban, permitting the exchange companies to export UAE dirham, pound sterling and euro, and import US dollars equivalent to their collective amount.
According to the State Bank of Pakistan (SBP), the country's foreign exchange reserves hit all-time high at 17.28 billion dollars during the week.
INTER-BANK MARKET RATES: On Monday, the rupee shed three paisa against dollar for buying at 85.51 and two paisa for selling at 85.56.
On Tuesday, the rupee lost 27 paisa against dollar for buying at 85.78 and 26 paisa for selling at 85.82. On Wednesday, the rupee moved up 10 paisa in relation to dollar for buying and selling at 85.68 and 85.72.
On Thursday, the rupee dropped 11 paisa against dollar for buying at 86.79 and 10 paisa for selling at 85.82.
Bearish trend was seen on the currency market on Friday as the dollar maintained its surge versus the rupee in process of trading, dealers said. The rupee was down by eight paisa against dollar for buying at 86.87 and 10 paisa for selling at 85.92.
On Saturday, the rupee shed two paisa against dollar for buying at 86.89 while it maintained its overnight level for selling at 85.92.
OVERSEAS OUTLOOK FOR DOLLAR: In the first Asian trade, the euro hovered below a one-month high, with market players saying that clearer signs of progress on the eurozone's safety net for sovereign debt were necessary for the currency to make significant gains.
Traders suspected hat a large portion of the bets against euro were cleared in a big bout of short-covering during previous week, suggesting limited gains in the near-term.
Malaysian ringgit was at 3.0550 versus dollar and Chinese yuan at 6.592 Indian rupee hit its lowest level in a month, tracking weak regional peers and a choppy domestic share market, which raised concerns that foreign funds would continue to repatriate funds. At 10:20 am (0450 GMT), the rupee was at 45.50/51 per dollar, after hitting 45.50, its lowest since December 20 and 0.3 percent below its close of 45.37/38 on Friday. Inter-bank buy/sell rates for the taka against dollar: 71.05/71.05 (previous 71.05/71.05); Call Money Rates: 8.00-15.00 percent (previous 8.00-15.00 percent.
In the second Asian trade, the euro dipped as uncertainty grew over whether officials would agree to beef up a eurozone safety fund, putting the currency on shaky ground again.
With a lot of short positions having been wiped out after previous week's rally and repeated failure at the highs near $1.3500, markets appeared ready to put on fresh bets against the single European currency.
The euro faced renewed selling after eurozone finance ministers made no firm decisions on Monday regarding possible additional measures to quell a sovereign debt crisis that had forced Greece and Ireland to take bailouts put nations such as Portugal and Spain under heavy pressure.
Indian rupee was available at Rs 45.52 versus dollar; Malaysian ringgit at 3.0575; and Chinese Yuan 6.590. In the third Asian trade, dollar slid to a two-month low against a basket of currencies, as continued short-covering in the euro helped spur a broad fall in dollar.
Talk of Asian central banks' buying euro and Australian dollar weighed on US dollar, which was also pressured by selling by Japanese exporters, traders said. The euro remained supported after having risen on Tuesday, when it attracted demand from Middle East accounts and gained a lift from an upbeat German ZEW investor sentiment report.
Indian rupee was trading at Rs 45.39 versus dollar; Malaysian ringgit at 3.0530; and Chinese yuan at 6.586. Interbank buy/sell rates for taka against dollar on Wednesday: 71.10/71.10 (previous 71.07/71.10); Call Money Rates: 5.50-15.00 percent (previous 6.50-15.00 percent).
In the fourth Asian trade, euro dipped on profit-taking, after having extended its rally to a two-month high above $1.35 overnight, bringing a key technical level in focus that could throw a speed-bump in its path.
Disappointing earnings from Goldman Sachs and weak US housing data on Wednesday hit appetite for riskier assets, giving traders an excuse to book profits on the euro.
"The euro has actually had quite a strong move since the beginning of the year. So, it's time for a pause and fall before it trades higher," said a trader for a European bank in Hong Kong. The euro eased 0.1 percent from late US trading on Wednesday to $1.3459.
Indian rupee was trading at Rs 45.59 versus dollar and Chinese yuan at 6.5863.
In the final trade, euro rose against dollar, nearing a two-month high hit earlier in the week, and traders said that the currency might see more gains in the near-term after a recent improvement in sentiment. Traders said that successful bond sales from highly indebted countries, including Portugal and Spain, and expectations of a strengthened euro zone rescue fund, were lending support to euro.
The European single currency rose 0.1 percent to $1.3486, nearing a two-month high of $1.3539 hit on Wednesday on trading platform EBS. China's yuan edged higher against the US currency on Friday, helped by a drop in the dollar index and shrugging off a weaker mid-point fixing. The yuan in the spot market closed at 6.5833 per dollar, down slightly from Thursday's 6.5854. The yuan has risen 3.69 since its mid-June depegging.
At the weekend, in the NY market, the euro hit a two-month high above $1.36 and its break of important technical levels suggested more gains to come now that anxiety about a euro zone debt crisis has started to wane.
The euro has outperformed the dollar in eight of the last 10 sessions, and Friday's breach of $1.3570 took it above the 50 percent retracement of its November-to-January slide. It was last up 1 percent at $1.3615.
OPEN MARKET RATES: On January 17, the rupee showed no change against dollar for buying at 85.95 while it shed five paisa for selling at 86.15. The rupee gained Rs 1.10 versus euro for buying and selling at Rs 113.45 and Rs 113.95.
On January 18, the rupee fell by 20 paisa against dollar for buying at 86.15 and 15 paisa for selling at 86.30. The rupee shed Rs 1.15 for buying and selling in terms of euro at Rs 114.60 and Rs 115.10.
On January 19, the rupee appreciated versus dollar, rising 15 paisa for buying at 86.00 and 10 paisa for selling at 86.20. The rupee continued its depreciation in relation to the euro, shedding 65 paisa for buying and selling at Rs 115.25 and Rs 115.75.
On January 20, the rupee showed no change against dollar for buying at 86.00, while it rose by 10 paisa for selling at 86.10. The rupee recovered 25 paisa in relation to euro for buying and selling at Rs 115.00 and Rs 115.50.
On January 21, the rupee showed no change against dollar for buying at 86.00, while it shed 10 paisa for selling at 86.20. The rupee lost 90 paisa versus euro for buying and selling at Rs 115.90 and Rs 116.40.
On January 22, the rupee retained its overnight value against dollar for buying and selling at 86.00 and 86.20. It rupee rose by 35 paisa versus euro for buying and selling at Rs 115.55 and Rs 116.05.