The rupee fell slightly against dollar on the currency market during the week ended on October 17, 2009, despite the fact that the US currency has been losing its lustre in the globe due to sharp erosion versus major currencies. On the interbank market, the rupee shed 5 paisa in relation to the dollar for buying and selling at 83.30 and 83.35.
On the open market, it fell by 15 paisa in terms of dollar for buying and selling at 83.25 and 83.35. It also dropped sharply versus euro, losing Rs 1.35 for buying and selling at Rs 123.55 and Rs 124.05. The rupee is still on the slide versus the dollar and it looks that it will continue its fall to touch the new low at Rs 85. Some analysts were of the view that the renewed slump in the US dollar has created a dilemma for US authorities seeking to nurse a fragile economy back to health without eroding confidence in the greenback.
The US unit has been hovering at its lowest point for over a year against euro and weakest in 10-month against yen amid a host of concerns about US deficits, interest rates and the pace of economic recovery. The weakness has sparked renewed speculation about dropping the dollar as a reference for oil prices and reduced use of the dollar as a reserve currency.
This has led to gold prices hitting all-time records, which some analysts call worrisome. Because gold and other commodities are priced in dollars, global investors have been moving into these "hard assets" to hedge against potential inflation and further declines in the greenback. Donald Ratajczak, consulting economist at Morgan Keegan, said the US Federal Reserve may face pressure to lift rates from the levels of near zero to help correct these global imbalances.
He cited "the danger that a weakened dollar raises commodity prices before the Fed is ready to raise policy rates." Some analysts say US authorities, despite repeated proclamations in favour of a "strong dollar," are happy to see the US currency weaken, giving a welcome advantage to US exports.
INTER-BANK RATES: On Monday, the rupee retained its weekend levels versus dollar for buying and selling at 83.25 and 83.30. On Tuesday, the rupee dropped 5 paisa against dollar for buying and selling at 83.30 and 83.35.
On Wednesday, the rupee gained 5 paisa against dollar for buying and selling at 83.25 and 83.30. On Thursday, the rupee rose by 5 paisa against dollar for buying and selling at 83.20 and 83.25.
On Friday, the rupee did not move to any side in terms of the dollar for buying and selling at 83.20 and 83.25. On Saturday, the rupee fell sharply against the dollar, losing 10 paisa for buying and selling at 83.30 and 83.35.
OVERSEAS OUTLOOK FOR DOLLARS: In the first Asian trade, the dollar edged broadly higher, extending a short-covering bounce against the yen as investors trimmed dollar-selling positions on caution that US interest rates could move up earlier than expected.
The dollar had been under heavy selling pressure on the prospect that US interest rates could remain low for a while and it hit its weakest level in eight months against the yen last week and a 14-month low against a basket of six currencies.
In the second Asian trade, the US dollar shifted back to the defensive and the Aussie hit a 14-month high as investors added to long positions in high-yielding currencies on expectations that robust US corporate earnings would sustain risk appetite. The New Zealand dollar also shined, hovering not far from a 14-month high, after retail sales data for August beat expectations and fuelled talk the central bank there might soon drop its explicit easing bias.
But overall activity was subdued in Asia as investors largely stayed on the sidelines ahead of a series of US earnings, dealers said.
In the third trading session of Asian, the dollar slid to its weakest level in 14 months against a basket of currencies, under pressure from expectations of continued low US interest rates and investor bets on commodity currencies. The euro hit its highest level in 14 months, while the yen rose as players dumped dollars when sell orders were triggered near 89.60-50 yen per dollar and after a Japanese official told Reuters that dollar weakness was likely to persist.
In the fourth session of Asian trade, the dollar fell to a 14-month low against a basket of currencies as comments by the head of Australia's central bank encouraged investors to buy the higher-yielding Australian dollar, which helped other currencies gain. At the final session, the yen stayed under broad pressure as investors cut some of their long positions, while sterling approached its highest level in three weeks following upbeat central bank comments.
The yen struggled as short covering in the pound spilled over to other cross/yen pairs, easing to as far as 90.99 per dollar from 90.60 late on Thursday in New York where it lost over 1 percent. The euro and high-yielding currencies such as the Australian and the New Zealand dollars hit new highs for the year against the dollar after positive US data and encouraging corporate earnings prompted investors to further build long positions, dealers said.
The dollar recovered some of the week's losses on Friday, as news of a large quarterly loss at Bank of America and flagging consumer confidence dulled investor demand for higher-yielding, higher-risk currencies. The greenback hit a 14-month low against the euro earlier this week as signs that a global recovery was gaining steam sent investors seeking assets and currencies that promise higher returns than the low-yielding dollar.
But evidence that US consumers and some top US banks are still struggling under a mountain of debt afforded investors a chance on Friday to book profits on the dollar's slide and the attendant rally in stocks and commodities. "In a very short time, we saw stocks and major currencies hit significant highs and the dollar fall to significant lows," said Brian Dolan, chief strategist at Forex.com in Bedminster, New Jersey. "The temptation to cover shorts and take profits can be pretty high at a time like this."
The dollar is likely to weaken further next week, cementing a trend that has been in place this month, amid increasing risk appetite and expectations US interest rates will remain low for some time. A generally light US economic calendar in the upcoming week should also encourage investors to maintain the market's overall bias, analysts said.
"The momentum is still quite strong for dollar weakness," said Vassili Serebriakov, currency strategist, at Wells Fargo in New York. "At this point, what would probably change the dollar's direction would be a different tone from the Federal Reserve, but that's not coming in the near term."
The minutes of the Fed's latest monetary policy meeting released last Wednesday showed policy-makers discussed whether they should boost asset buying if the outlook worsened.
OPEN MARKET RATES: On October 12, the rupee shed 5 paisa against dollar for buying at Rs 83.10 and 10 paisa for selling at Rs 83.20. The rupee also came down in terms of euro, losing 15 paisa for buying and selling at Rs 121.90 and Rs 122.40. On October 13, the rupee was unmoved in terms of dollar for buying and selling at 83.10 and 83.20, while it rupee showed weakness versus euro, losing 55 paisa for buying and selling at Rs 122.45 and Rs 122.95.
On October 14, no change was seen in the value of the rupee in terms of dollar for buying and selling at 83.10 and 83.20. The rupee continued slide versus euro, shedding 65 paisa for buying and selling at Rs 123.10 and Rs 123.60.
On October 15, the rupee fell sharply, losing 15 paisa against dollar for buying and selling at 83.25 and 83.35. The rupee came down versus euro, losing 85 paisa for buying and selling at Rs 123.95 and Rs 124.45. On October 16, the rupee followed same track as it retained its overnight level against the dollar for buying and selling at 83.25 and 83.35. The rupee, somehow, managed to recover 25 paisa against euro for buying and selling at 123.70 and Rs 124.20.
On October 17, the rupee did not move to any side versus dollar for buying and selling at 83.25 and 83.35. The rupee maintained its overnight gains against euro, rising 15 paisa for buying and selling at Rs 123.55 and Rs 124.05.
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