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Currency watch & currency talk

OWAIS S. KALIA

LOCAL SCENARIO

Pak Rupee officially remained unchanged since March 13, after having devalued twice one on March 7 and second on as mentioned above by a total of 12 paisa. In the kerb market if you look at the graph it started with Rs 36.70, went down to Pak Rs 36.60 on March 6, jumped on the Pak Rs 36.65 on first devaluation, maintaining a low profile till 12th, whereas on 2nd devaluation it rallied to Pak Rs 36.74. At this point the dollar made its way up, creeping up this way it reached Rs 36.90 by the end of the month.

Pound sterling supposed to be highly precarious one will always impart a zig-zag behaviour if you look at the graph. It started at Rs 56 it went down to its lowest of Pak Rs 55.62 in the first week of the month. It crossed the cut-off at Pak Rs 56 in mid of the month. Reached its zenith of Pak Rs 56.40 in the last week of the month.

Deutsche marks of Germany, improvising to be known as the dollar of the Euro behaves as the dollar does. Certainly, a stable one, maintaining its repo, makes its entry and exit on the same level through parallel paths. In a nutshell Deutsche marks staying in a narrow-band started with Pak Rs 24.90, dipped at its low of Pak Rs 24.60, reaching its peak of Pak Rs 24.95, finally ended with the same values from where it started with.

Japanese yen, the prime one of Asia remained weak against Pak Rupee, mostly showing a narrow-band spectrum, noosed around Pak Rs 0.345 for almost the whole period except at the very end of the month where it dropped to a Pak Rs 0.342. It seems to be a right time to go for Japanese yen for forward cover of any import from Japan.

INTERNATIONAL SCENARIO

Last month, there really appeared two big news, one was Taiwan factor and other was mad cows disease or Bovine Spongiform Encephalopathy (BSE). Both the news brought about considerable changes in the International Forex Market.

In the first week there was a Bundesbank Council meeting and surprisingly they came with the decision of no change in cutting of interest rate. At the same time US datas were negating US support US January existing home sales of 4.1 percent and US trade gap widened in December by one percent from $6.71 billions to $6.78 billions. The dollar managed to rally from DM 1.45 to DM 1.46 and went beyond DM 1.47. Here the market continued to speculate over the weaknes in German economic numbers and the possibility of an interest rate cut there. With the German unemployment expected to rise, along with a lower GDP figure, the pressure was on the Deutsche marks with the investors switching to high interest yielding EU currencies like Spanish peseta and Italian lira. The dollar hence rallied upto DM. 1.4810 to test a high of DM 1.486 when German unemployment rose from 4.16m to 4.27m. And its GDP shrank by 0.4 percent to 3.8 percent.

The dollar attempted to break above this level but reversed on the back of the meltdown in the bond market falling sharply to DM1473. There came the bullish numbers in favour of US. Industrial production rose by 1.2 percent and capacity utilisation rose from 81.9 percent to 82.9 percent. The dollar rallied to DM 1.477 and stabilized at DM 1.474 a survey of German business confidence showed a decline, bolstering a case for an interest rate cut. The dollar rallied up to DM 1.478. It was further enhanced by the news that China had prepared battle plans to invade Taiwan and the dollar reached up to DM 1.482.

Pound sterling very volatile one stayed in wide-band spectrum ranging from 1.51 to 1.54 against the dollar. UK came in with 0.25 percent cut in interest rates to six percent showing slow economic growth and low inflation. The pound dropped from 1.53 to 1.525 against the dollar. Here very unusual and unexpected datas appeared from US. Non-farm payroll numbers rose by 705,000 surprisingly 2.17 times higher than expected and unemployment rate dropped to 5.5 percent from 5.8 percent, pushing the dollar to stg 1.515. Sterling has managed to hold above 1.525, which continues to support it in short-term while 1.517 provides a safety net below. On the upside it holds on to 1.545, which if broken would begin to move to 1.58 in the coming weeks. Here came the mad cow story from UK. Sterling collapsed from 1.534 to 1.52 on the presumption that imports would be higher from Europe to file the consumer needs for dairy and meat products. This means that not only would the trade gap get worse but the exchequer would have to literally have to bust the bank to finance the economy. So nearly all the concerned products will become dearer. So for the short-term at least no chance of further interest rate cut.

The major prime currency of Asia that is Japanese yen was at 103.80 against the dollar in the very first days of the month.

Intervention by (Bank of Japan) BoJ came in around 103.60 to take it to 104.50 the yen has been trading on its own agenda, and it remains the currency most overbought against the dollar. The yen may continue to face weakness in the short-term as the China-Taiwan issue continues to focus on the regional dependence by both Taiwan and Japan on US for their military support. Given the economic relations between the two countries there is bound to be a ripple effect on Japan. The Japanese trade surplus with the US declined by 28.9 percent in February from a year earlier and for the ninth month in a row. The dollar rose to 105.95 from 105.75. Taiwan straits ended peacefully was a huge sign of relief for all. The climbdown by both the countries after the landslide victory by the incumbent Taiwanese President and the conciliatory moves by him saw the yen gain after being weak throughout the crisis. The yen appreciated to 105.95 from the closing at 106.70. The end of the financial year in Japan has relieved the pressure on the yen. Though the next target for the yen seems to be at 108.00. The Bank of Japan (BoJ) seems to maintain it at a level of 104.0 to 105.0. Intervention by BoJ is likely there if it goes below 104.0 and exceeds beyond 108.80.

To end I would say count-down period has started for the dollar. The rupee would continue to depreciate slowly and gradually before the end of fiscal year. So be a speculator like George Soros, supposed to be the greatest speculator of all time and Wall Street's ultimate master of universe. So go for dollars. You will feel that you would be a man with the Midas touch.