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Fortnightly outlook for currencies: Nirmal Bang

While on the domestic front, healthy monsoons and debt-related inflows would continue to support the rupee, we recommend investors to go short in USD-INR pair at 44.81-82 for a target of 44.50 in spot.

June 14, 2011 / 05:09 PM IST

The fortnight gone by was quite volatile as the global economic data did not give any direction to the traders, bringing the fundamental link between safe havens and high-yielding assets to the fore. On several occasions, emerging markets encouraged investors to pick assets with higher returns. Risk aversion in the markets caused the Japanese yen and the Swiss franc to be on the gaining side.

The past week was a nightmare for the US dollar as it fell sharply due to discouraging fundamental indicators, aggravated by dismal non-farm employment data. Also, there were talks of a second bailout package for Greece, which lifted sentiments and fuelled interest rate expectations in the Euro zone and emerging markets, further intensifying the weakness in the US dollar.

In the past fortnight, the dollar index made a high of 76.37 mainly on the back of the sharp fall in the euro due to the ongoing debt crisis, and was also supported by the hope of a recovery in the US, with cues from the minutes of the FOMC meeting.

However, the gains in the dollar index got eroded and fell to 73.64 due to the weak unemployment and non-farm employment data. While unemployment rate stood at 9.1%, the non-farm employment change was 38,000, according to Reuters.

Low yields too punished the US dollar against the interest-rate sensitive Japanese yen. Going forward, interest rate decisions by Australia, New Zealand, England and the European Central Bank could adversely hit the US dollar.

The euro stood at 1.42 against the dollar in the early fortnight; it was rallying despite continued fears of Greek fiscal solvency and risks to the euro zone. The euro made a low of 1.3966 due to uncertainties like whether the IMF will disburse its next tranche of aid to the beleaguered Greek government.

Moreover, few newspapers reported that Greece was looking at taking austerity measures to reduce its debt, followed by expectations of the second bailout package, which offered hope to worried investors and caused the euro to surge to 1.466. We are bullish on the euro as we expect the interest rate hike in the coming ECB meeting could push the euro to 1.49 to 1.50 against the dollar.

The sterling opened at 1.6249 against the dollar and later slipped against the majors as there was a mixed UK employment report and a slightly dovish tone to the Bank of England

first published: Jun 14, 2011 05:04 pm

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