FOREX MARKET
The foreign exchange market this week is likely to witness less volatility as the month-end demand which was observed last week will ease.
With rates in the call money market expected to rule above six per cent, forex arbitraging also may be on a low key.
The spot rupee is likely to range between 36.25 and 36.35, while forward premiums (six-month annualised) are expected in the 5.5-six per cent band. Trading volumes are expected to remain fairly thin. At the beginning of the week there might be some dollar inflows from exporters.
On account of the holidays last week, some corporate remittances have accrued with banks. These are likely to flow into the market early in the week providing some leverage to the rupee.
Hence, spot rupee which slipped to a low of 36.42, is likely to recover unless there is any demand from unexpected quarter.
Last week, the State Bank of India (SBI) was in the market for making month end purchases. Other banks were also reported to be buying for their corporate clients. This put upward pressure on the spot rupee during the last week.
In the forward segment, premiums are expected to ease from the last week's level of 6.7 per cent.
The market does not expect the rates to go higher than this level particularly since there is not much corporate demand for the forward cover particularly not early in the month. However, exporters are likely to come in to receive the premium as these are attractive rates for them.
Last week, active arbitraging by banks between the local and overseas currency markets propped up the forward premiums on the dollar particularly for the medium to far-term. Moreover, some month-end demand also added to the pressure.
Reserve Bank of India, meanwhile, kept out of the market last week. At most, it made esquires with certain banks when the markets appeared to be heating up and rupee was moving too fast one way or the other. The apex bank did not make any purchases in the market.
