DAILY FOREX REPORT FOR 23 JULY 2014

MARKET HEADLINES

Rupee ends little changed; fund flows in focus
The rupee ended flat, continuing a pattern of holding in tight ranges, with trading dominated by dollar sales from foreign banks but offset by solid greenback demand from oil companies and other importers. Higher shares also continued to underpin sentiment, with indexes gaining for a fifth consecutive session amid continued buying by foreign investors. Overseas funds were net buyers for a third consecutive session on Friday with purchases of $97.56 million despite concerns about escalating tensions between Russia and the West. "There is a strong foothold for the INR at 60 levels. There are no domestic triggers which can push the rupee sharply higher or lower from here. Market is now keen to see how the government delivers on its budget estimates," said Naveen Mathur, associate director, commodities and currencies at Angel Broking. The partially convertible rupee closed at 60.30/31 per dollar compared with 60.28/29 on Friday. The unit moved in a tight range of 60.1650 to 60.32 range during the session. Traders said gains in other Asian currencies versus the dollar also aided sentiment for the rupee. Most Asian currencies rose on Monday, with the Thai baht touching a seven-month high, as investor risk aversion showed signs of easing, although market players remained cautious about geopolitical risks. In the offshore non-deliverable forwards, the one-month contract was at 60.60 while the three-month was at 61.13. FACTORS TO WATCH * Euro recovers against dollar; yen supported as stx slip * Asian currencies rise, baht hits 7-month high * Asia stcks mostly higher, optimistic on US earnings * Foreign institutional investor flows * For data on currency futures.

China's yuan edges up in narrow trade, outlook firms
China's yuan edged up on Tuesday, holding in a narrow range due to a lack of trading cues, with the overall market shifting to a more positive outlook on the currency for the rest of the year. Spot yuan stood at 6.2068 per dollar in midday trade, slightly stronger than Monday's close of 6.2089. It weakened 0.1 per cent last week against the dollar as a rising bout of global risk aversion forced investors to flee to the relative safety of the U.S. currency. The People's Bank of China ( PBOC) fixed its official rate at 6.1544 per dollar, largely unchanged from Monday's fixing of 6.1547. "It feels like there is a little more good news on the growth side and the yuan remains a higher yielding currency in the current landscape, so it should recover from the current levels. But importers are still unhedged so any gains are likely to be slow," said Ju Wang, a senior FX strategist at HSBC. Recent data has shown that the economy is on a firmer footing than in early 2014. Second quarter GDP was at 7.5 per cent while trade data showed a marked improvement in June, with officials expecting further growth. China's bonds offer higher yields than other sovereign debt. Ten-year China debt offers a yield of 4.3 per cent while 10-year U.S. Treasuries offer 2.47 per cent and comparable German debt yields 2.57 per cent.

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