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Rupee may range between 47.30-48: Pinnacle Forex

On Tuesday, the rupee ended higher at Rs 47.77 per USD as against its previous close of Rs 47.91 per USD.

According to N Subramaniam, Pinnacle Forex, the abundant dollar liquidity is likely to cap the dollar rally against all currencies. This may support the rupee to stay within a range. The range for the day is seen between Rs 47.30-48.00 per dollar.

FOREX:Ringgit Likely To Trade Rangebound Next Week

The ringgit is expected to trade rangebound against the US dollar next week as investors are monitoring closely the movement of global economy, dealers said.

According to them, the local currency is expected to move between the 3.49 and 3.53 level against the greenback next week.

"The ringgit has potential to rise but if it did, it is not expected to breach the 3.53 level," one of the dealers said.

She said that throughout the week, the ringgit gained from the US dollar's weaknesses.

During the week, the ringgit was traded rangebound against the greenback but it strengthened during the last two days of the working week on concerns over the US government's growing debt.

On Thursday, Standard & Poor's lowered the United Kingdom's AAA outlook from "stable" to "negative" due to the government's deteriorating finances under the current economic climate.

"The news sparks fears among investors that the United States may face the same predicament," the dealer said.

On a week-to-week basis, the ringgit was higher against US dollar at 3.4900/4950 compared with the previous Friday's 3.5470/5520.

The local currency appreciated against the Singapore dollar to 2.4112/4168 from 2.4170/4226 last Friday and also against the Japanese yen to 3.7072/7130 from 3.7282/7350 previously.

Against the British pound, the ringgit weakened to 5.5173/5259 from 5.3858/3948 last Friday and it also went down against the euro to 4.8686/8769 from 4.8072/8151 previously.

Rupee windfall awaits Ranbaxy in Q2

The rupee’s appreciation this week has come as a welcome reprieve for Ranbaxy Laboratories, the country’s largest drug maker, which finds itself

Malvinder Mohan Singh

saddled under huge mark-to-market forex losses. Ranbaxy chairman Malvinder Mohan Singh told ET Now in an exclusive interview that the company will be able to wipe out its forex losses this quarter and head back towards profitability. Excerpts from the interview.

Ranbaxy posted losses of over $150 million in the last quarter due to the mark-to-market hit on forex derivative contracts. What will rupee appreciation mean for you?

There are two key data points. If you look at our December 2008 results, we took a mark-to-market hit when the rupee was at 48 and in the March quarter of 2009 we took a mark-to-market loss when the rupee was at 50.50 to the dollar. Today, the rupee is at sub-48 levels. If the rupee remains at this rate as we go towards end of June and finish our second quarter, we will see us being able to write back as profits all the losses we had taken in the first quarter of 2009. If the rupee remains below 48, we will also be writing back some of the losses from December 2008 in the June quarter of this year and going forward.

What is the quantum of losses that you will write back as profits in the next quarter?

We had approximately $150 million of pre-tax forex losses in the first quarter of 2009. With the rupee at 48, that is the very least we will write back though the figure could be much higher depending upon how the rupee moves.

In dollar terms, revenues have dropped nearly 31% quarter-on-quarter in the US. What steps are you taking to revive US sales growth and what is your strategy to mitigate the impact of the US FDA ban?

If you look at the US market, the impact is because of the ongoing issues with the US FDA and the fact that we are not being able to supply key products out of our Indian facilities at Paonta Sahib and Dewas. What we have been doing is trying to move some of those products into our US facilities and also other people’s facilities which are FDA approved.

UPDATE 3-Nigeria's central bank lifting forex restrictions

Nigeria's central bank said on Friday it would return to a fully liberalised foreign exchange market over the next three months, allowing banks to freely trade among themselves after months of restrictions.

The relaxation of the restrictions is positive news for foreign investors who had been unnerved by a lack of clear commitment on when the return to a freely-determined exchange rate might come, analysts said.

The regulator said it was increasing the net foreign exchange open position for banks to 2.5 percent from 1 with immediate effect, a first step toward lifting measures brought in in February to stem the naira currency's sharp decline.

February's measures gave the central bank a tighter grip on the exchange rate by preventing banks from trading dollars among themselves but created a wide disparity with the parallel black market, the only alternative for U.S. dollar purchases.

Central Bank Governor Chukwuma Soludo said the monetary policy committee (MPC) had decided at a meeting on Thursday that the exchange rates had stabilised at both the official and parallel markets and that the mid-term outlook was now stable.

"Consequently, the MPC decided to review the series of controls it put in place a few months ago over the next three months and return to the fully liberalised regime we had before the recent controls," Soludo said.

"We believe that the premium between parallel and official exchange rates would narrow significantly in the days ahead. We can sustain the changes over time," he said.

At its daily foreign exchange auction on Thursday, the central bank sold naira at 146.63 to the dollar, while the local currency was trading on the black market at 182.

Soludo said the MPC had also decided to issue short-term treasury bills to try to mop up excess liquidity.

SWAN SONG?

Soludo's five-year term expires on May 29 and there has been intense speculation over whether President Umaru Yar'Adua will decide to reappoint him. For more see [ID:nLB99422].

The Leadership newspaper cited sources in the presidency on Friday as saying he would be replaced by Lamido Sanusi, the head of First Bank (FBNP.LG). [ID:nLB101900]

Some analysts said Soludo appeared to be attempting to reassert his reformist credentials with Friday's announcement.

February's measures came after the naira fell more than 20 percent against the dollar in two months as the world's eighth biggest oil exporter battled with lower foreign earnings caused by a weaker oil price CLc1 and the global economic downturn.

Pratice Trading is Crucial in Forex

Our inbox gets this message at least once a month: "I lost a lot of money when I first started trading, but after I got the hang of it I did better." We quickly learn that these people failed to include a vital step in their trading education: Practice.

And practice trading isn't just for newbies. Anytime you develop a new strading strategy, you MUST backtest and then practice trade before you try it in the live market. This is a lesson you can learn the easy way, or the hard way. Please, choose the easy way. (For more on backtesting, be sure to read: Backtesting Software for Forex Traders).

Article continues below. Click on the flags for analysis and charts for each pair.

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

GBP/JPY

EUR/JPY

Why would you not practice first?

Imagine you've been selected to shoot a free-throw at half-time of an upcoming basketball game for the chance to win $10,000. Would you spend some time practicing the shot leading up to the game, or would you simply strut in there and plan to sink the basket?

Of course, you'd practice. But sadly, many traders jump into the markets with live money, and end up losing lots of simply because they weren't prepared for the ins-and outs of actually placing trades and managing them.

Don't kid yourself, you need practice. A MAJOR part of your market education should be learning how a trade is actually placed, order types, commissions, timing your entries and exits (if you plan to trade on market timing or with a trend). All of these things take practice and refinement, and it's way to painful a lesson to learn with real money.

Practice until you've got it

If you're new to the market, we're not talking about practicing for just a couple hours, or even days. For some, it may take weeks to get a strategy and the mechanics down, while others may take months. And some will even decide they can't take the emotional stress investing your own money brings, and they decide they just need to learn enough to pick a good financial planner or investment advisor.

And even if you plan to be a long-term forex trader (yes, there is such a thing!) who infrequently places new trades or exits existing trades, you still should practice in the beginning. Placing the order wrong will cost you a spread, not to mention any loss on an erroneous trade.

Either way, if you've spent the time to go through the education we're offering here, the next step MUST be practice trading.

A word of advice: Paper trade like you mean it!

Sometimes new traders open a practice trading account, and begin placing hundreds of thousands of play money on the line, trading wildly and recklessly. That's fine if you're just looking for a good time.

But if you want valuable practice that will help you in the live market, trade just like you would if it was real money on the line. Make your practice trading account balance similar to your actual account balance. And make sure you've developed a trading strategy to test and refine.

Brazil offers to buy dollars in spot forex market

Brazil's central bank offered to buy dollars in the spot foreign exchange market on Friday, seeking to soak up a flood of greenbacks flowing into the country for an 11th straight session.

The real BRBY was trading 0.4 percent stronger at 2.03 per U.S. dollar shortly after the central bank announcement.

On May 8, the bank bought dollars for the first time in eight months as the real gained close to the psychologically key mark of two per dollar.

Forex: CBN returns to wholesale system

The Central Bank of Nigeria, on Friday, announced that it was returning the foreign exchange market to the Wholesale Dutch Auction System.

This followed the Monetary Policy committee convened to review money and foreign exchange developments in the country.

The CBN had on January 14, announced the suspension of WDAS and put in its place the Retail Dutch Auction System following an unprecedented crash in the value of naira in the foreign exchange market.

Governor, CBN, Prof. Chukwuma Soludo, who announced the return to the wholesale system, said the decision was based on the observation that exchange rates have remained stable at both the official and parallel markets for some months now.

WDAS enables the CBN to sell foreign exchange through banks while with the RDAS, companies and individuals can source their foreign exchange needs through the apex bank and their authorised dealers.

Soludo said the apex bank would remove all restrictions imposed on the market in order to attain full liberalisation in the next three months.

He said, ”The MPC observed that the medium term outlook for the forex market was stable. Consequently, the MPC decided to review the series of controls instituted in the last few months and over the next three months return to the fully liberalised regime that that we had before the recent controls.

”We believe that the premium between the parallel and official exchange rates will narrow significantly in the days ahead and we can sustain the changes over times. The CBN is also exploring the possibility of introducing futures and swaps in the foreign exchange market.”

The CBN boss added, ”As a first set of measures towards the return to WDAS, the committee decided to increase the net foreign exchange open position for banks from one to 2.5 per cent with immediate effect, while keeping in view the possibility of raising it further at the end of June 2009.

”Banks are no longer mandatorily required to sell to the CBN, after five days, funds sourced from non-RDAS and non-oil export proceeds and may use such funds for inter-bank transactions.

”Government agencies and oil companies will have the discretion to sell foreign exchange at the interbank foreign exchange market or to the CBN with effect from May 25 (Monday).”

Other policies measures taken at the MPC include the removal of the requirement that banks sell foreign exchange at one per cent around CBN rate as the apex banks will henceforth participate in the inter-bank foreign exchange market.

Soludo also announced that approvals-in-principle has been granted to 50 non-bank bureau d‘change to operate as class A BDCs. With this new status, the BDCs can now have access to official foreign exchange from the apex bank.

The apex bank also decided to issue short-term instruments to be synchronised with the Debt Management Office‘s issuance of FGN bonds in order to mop up excess liquidity in the system.

FOREX-US dollar drops to 2009 low on ratings worries

* Dollar under pressure on ratings concerns, risk-taking

* Dollar index drops to 2009 low, euro breaks $1.40

* Focus on U.S. Treasury auctions next week

(Adds details, updates prices)

By Wanfeng Zhou and Vivianne Rodrigues

NEW YORK, May 22 (Reuters) - The U.S. dollar dropped to its lowest level this year on Friday, and was on track for its biggest weekly fall in two months, on growing concerns about the AAA-rating status of the United States.

Investors worried about the U.S. sovereign credit rating after Standard & Poor's said it might cut Britain's AAA rating on Thursday, triggering heavy selling of in U.S. Treasury bonds and the dollar, although U.S. stocks edged up on Friday.

The ratings outlook downgrade of Britain focused attention on soaring fiscal deficits and debt in the United States fueled in part by the unprecedented efforts by the U.S. Treasury and the Federal Reserve to bolster the financial system.

"The fact that the market has seized on these concerns suggests that the impact of the recent monetary and fiscal easing is starting to grow, and certainly that points to a lower dollar moving forward," said Todd Elmer, currency strategist at Citigroup in New York.

A rise in U.S. stocks and more upbeat views of the recession-hit global economy also encouraged risk-taking by investors, helping the euro break above $1.40, while sterling hit a 6 1/2-month peak versus the dollar.

The dollar has come under heavy pressure in recent weeks as growing optimism that the worst of the global economic slump may be past dented safe-haven flows into dollar-denominated assets.

"So far, the market (has been) very much focused on the global recession and ... how quick and strong will the recovery be," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto.

The S&P news "has opened for the dollar a very worrying Pandora's box," he said.

The dollar index .DXY was on track for a 3.6 percent drop this week, the worst week since March. The index has lost more than 5.0 percent so far in May, one of its steepest monthly declines over the last 25 years.

In afternoon trading in New York, the ICE Futures U.S. dollar index .DXY, a gauge of its value against six major currencies, was down 0.6 percent on the day after hitting 79.805, a fresh 2009 low.

The euro was up 0.8 percent at $1.4009 , after hitting a session peak of $1.4050, according to Reuters data, the highest since early January.

Varun Shipping net up 51% on forex gains

Mumbai: Varun Shipping Company reported a 51 per cent rise in net profit at Rs 122.8 crore for the year ended March 31, 2009, against Rs 81.5 crore in the preceding fiscal.

The figure for 2007-08 did not include foreign exchange gain due to revision in Accounting Standard 11 (AS-11) by the Ministry of Corporate Affairs.

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Under the earlier accounting format, companies were required to account for forex gains/losses.

Income from freight and charter hire rose 7.5 per cent to Rs 914.6 crore from Rs 850.8 crore in the previous year.

More equity news

"It's been a challenging year. Banks were tightening credit, charterers were looking at renegotiation. Utilisation rates have also fallen because of the downturn," said Yudhisthir Khatau, Vice-Chairman and Managing Director, at a press conference here on Thursday.

Future outlook

The current year has started with a "recessionary tendency", said Arun Mehta, Chairman and Managing Director. "Our profit margins may be hit in the near term as we have entered into fresh contracts at lower freight rates," he added.

The company has also reduced its capital expenditure plan to Rs 400-500 crore for this fiscal from Rs 2,000 crore last year. "In the current economic environment, we want to constantly review and relook our plans every quarter," Khatau said.

Varun plans to use its entire capex on acquisition of offshore vessels. "There is a tremendous opportunity in this market and we want to increase our business exposure in offshore," he said.

More India business stories

The company has five anchor handling tug supply (AHTS) vessels used to support oil rigs as well as tow and anchor them. Of these, three are operating in the North Sea and plans are now underway to deploy them in Africa, the Gulf of Mexico, Brazil and the Krishna-Godavari basin.

This is a result of rates in the North Sea collapsing by 70 per cent from 2008 levels.

Varun Shipping's share price closed at Rs 58.95 on the BSE on Thursday.

Forex kitty shrinks $1.73 bn to $254 bn

India’s foreign exchange reserves declined $1.73 billion to $254.21 billion during the week ended May 15, 2009, mainly due to revaluation of currencies.

According to the latest data by the Reserve Bank of India (RBI), foreign currency assets declined $1.75 billion to $243.75 billion. The reserves have gone up by $2.22 billion in the financial year so far.

Gold and special drawing rights remained unchanged while the reserve position in the International Monetary Fund rose $13 million to $1.22 billion during the week.

In rupee terms, the reserves declined Rs 1,195 crore to Rs 12,60,208 crore. During the week, foreign institutional investors bought shares worth $1.09 billion in the Indian stock market. The rupee appreciated 0.22 per cent to 49.40 levels at the end of May 15, from 49.51 on May 11.

The reserve money went up 2.2 per cent to Rs 9,60,221 crore. Currency in circulation went up 0.4 per cent while bankers’ deposits with the central bank rose 9.4 per cent. Other deposits with the RBI came down by 29.1 per cent.

During the fortnight ended May 15, 2009, banks’ investments in liquid schemes of mutual funds went up by Rs 15,080 crore. Bankers said they had few avenues to park excess funds after the RBI closed the second LAF (liquid adjustment facility) window.

Market size and liquidity

The foreign exchange market is unique because of

• its trading volumes,
• the extreme liquidity of the market,
• its geographical dispersion,
• its long trading hours: 24 hours a day except on weekends (from 22:00 UTC on Sunday until 22:00 UTC Friday),
• the variety of factors that affect exchange rates.
• the low margins of profit compared with other markets of fixed income (but profits can be high due to very large trading volumes)
• the use of leverage

Main foreign exchange market turnover, 1988 - 2007, measured in billions of USD.

As such, it has been referred to as the market closest to the ideal perfect competition, notwithstanding market manipulation by central banks. According to the Bank for International Settlements,^[2] average daily turnover in global foreign exchange markets is estimated at $3.98 trillion. Trading in the world's main financial markets accounted for $3.21 trillion of this. This approximately $3.21 trillion in main foreign exchange market turnover was broken down as follows:

• $1.005 trillion in spot transactions
• $362 billion in outright forwards
• $1.714 trillion in foreign exchange swaps
• $129 billion estimated gaps in reporting

Of the $3.98 trillion daily global turnover, trading in London accounted for around $1.36 trillion, or 34.1% of the total, making London by far the global center for foreign exchange. In second and third places respectively, trading in New York accounted for 16.6%, and Tokyo accounted for 6.0%.^[4] In addition to "traditional" turnover, $2.1 trillion was traded in derivatives.

Exchange-traded FX futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts.

Several other developed countries also permit the trading of FX derivative products (like currency futures and options on currency futures) on their exchanges. All these developed countries already have fully convertible capital accounts. Most emerging countries do not permit FX derivative products on their exchanges in view of prevalent controls on the capital accounts. However, a few select emerging countries (e.g., Korea, South Africa, India—[1]; [2]) have already successfully experimented with the currency futures exchanges, despite having some controls on the capital account.

FX futures volume has grown rapidly in recent years, and accounts for about 7% of the total foreign exchange market volume, according to The Wall Street Journal Europe (5/5/06, p. 20).

Top 10 currency traders ^[5]
% of overall volume, May 2008

Rank	Name	Volume
1	Deutsche Bank	21.70%
2	UBS AG	15.80%
3	Barclays Capital	9.12%
4	Citi	7.49%
5	Royal Bank of Scotland	7.30%
6	JPMorgan	4.19%
7	HSBC	4.10%
8	Lehman Brothers	3.58%
9	Goldman Sachs	3.47%
10	Morgan Stanley	2.86%

Foreign exchange trading increased by 38% between April 2005 and April 2006 and has more than doubled since 2001. This is largely due to the growing importance of foreign exchange as an asset class and an increase in fund management assets, particularly of hedge funds and pension funds. The diverse selection of execution venues have made it easier for retail traders to trade in the foreign exchange market. In 2006, retail traders constituted over 2% of the whole FX market volumes with an average daily trade volume of over US$50-60 billion (see retail trading platforms).^[6] Because foreign exchange is an OTC market where brokers/dealers negotiate directly with one another, there is no central exchange or clearing house. The biggest geographic trading centre is the UK, primarily London, which according to IFSL estimates has increased its share of global turnover in traditional transactions from 31.3% in April 2004 to 34.1% in April 2007. The ten most active traders account for almost 80% of trading volume, according to the 2008 Euromoney FX survey.^[3] These large international banks continually provide the market with both bid (buy) and ask (sell) prices. The bid/ask spread is the difference between the price at which a bank or market maker will sell ("ask", or "offer") and the price at which a market-maker will buy ("bid") from a wholesale customer. This spread is minimal for actively traded pairs of currencies, usually 0–3 pips. For example, the bid/ask quote of EUR/USD might be 1.2200/1.2203 on a retail broker. Minimum trading size for most deals is usually 100,000 units of base currency, which is a standard "lot".

These spreads might not apply to retail customers at banks, which will routinely mark up the difference to say 1.2100/1.2300 for transfers, or say 1.2000/1.2400 for banknotes or travelers' checks. Spot prices at market makers vary, but on EUR/USD are usually no more than 3 pips wide (i.e., 0.0003). Competition is greatly increased with larger transactions, and pip spreads shrink on the major pairs to as little as 1 to 2 pips.

Foreign exchange market

The foreign exchange market (currency, forex, or FX) is where currency trading takes place. It is where banks and other official institutions facilitate the buying and selling of foreign currencies. ^[1]FX transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The foreign exchange market that we see today started evolving during the 1970s when worldover countries gradually switched to floating exchange rate from their erstwhile exchange rate regime, which remained fixed as per the Bretton Woods system till 1971.

Presently, the FX market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Traditional daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements.^[2] Since then, the market has continued to grow. According to Euromoney's annual FX Poll, volumes grew a further 41% between 2007 and 2008.^[3]

The purpose of FX market is to facilitate trade and investment. The need for a foreign exchange market arises because of the presence of multifarious international currencies such as US Dollar, Pound Sterling, etc., and the need for trading in such currencies.