FOREX REPORT FOR 08 AUGUST 2014

MARKET HEADLINES

Rupee likely to correct towards 62.5 - 63 per dollar
Indian Rupee is trading at 5-month low today after its sharpest fall in six and a half month period yesterday. It has been the worst performing currency in Asia this week. Though, it advanced in the opening trade today reacting to the Government's move to open up FDI in railways and defence, the gains were limited. The profit booking in Indian and global equity markets were some of the primary reasons for the currency turning weak after a positive start. Other big concern for the forex market is the
inflation. While the Indian inflation numbers have eased, it is still high. The RBI review this week has been in-line with market estimate. The central bank has kept the key interest rates unchanged but has expressed concern on inflation. There are concerns regarding monsoon as well. The rainfall is still 21 per cent deficient even as monsoon revived in July. Another factor that can impact the rupee is India's fiscal deficit. It has hit 56.1 per cent of full year target in Q1 of FY15. Foreign investors would want to see how the numbers are managed.The market has been kind to Modi government and is waiting for the new ministers to start with big ticket reforms. It would be interesting to see on how BJP fares in the upper house of parliament. If the government falters, it will hurt investor sentiment and lead to outflow of funds. The Indian equity markets are already seeing some profit booking. There are reports of foreign banks buying US dollars for their clients which mean that some foreign investors are pulling back money. There has been pressure on the rupee from global markets as well. The global currency basket has turned weak against the US-dollar index which is at 6-month high. The ongoing geopolitical concerns in Ukraine, Russia and Middle East etc which has led to safe haven flows to the US dollar.

Rupee recovers by 21 paise, trades at 61.28 against dollar
The rupee recovered by 21 paise to 61.28 against the US currency in morning trade today on fresh selling of dollars by banks and exporters in view of good foreign capital inflows into equity market. The rupee was trading at 61.37/3775 against US dollar. It hit a session low of 61.55, the lowest since March 14. The rupee had closed at 61.4950/5050 on Wednesday. Traders cited modest RBI intervention to defend the rupee via state-run lenders. That marks a changed stance from not long ago when the RBI was buying dollars. Dealers said foreign custodian banks buying dollars for offshore clients trimming exposure to India.

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