Gold traders looking for reversal of customs duties

Anticipating a spike in gold prices due to the proposed hike in customs duties for precious metals in the Union Budget for 2010-11, the gold traders of Orissa have sought a rollback of the proposal.

In his budget speech, Union finance minister Pranab Mukherjee had announced a 50 per cent increase in custom duties on gold from Rs 200 to Rs 300 per 10 gm. Similarly, he had also announced to raise the customs duty on silver by 50 per cent from Rs 1000 to Rs 1500 per kg.

“The hike in customs duties is likely to push up price of gold. We demand that the Centre should reconsider the decision for the gold traders of the state”, said Sanjay Sahu, general secretary of Orissa Jewellery Association. The gold trade in Orissa has already been hit hard by the escalating prices and any further hike will only worsen the situation, P Satya Narayan Senapati, president of Berhampur Jewellery Association (BJA).

According to gold traders, the price of gold in India is dependent on the international gold prices, but it is feared the domestic gold price will still escalate even if the global prices fall due to the hike in customs duty rate.

Source : Business Standard

Rates Are Hiked By Australia; What Is The Future About Carry Trade?

 I want to use this post to write about the long side of the carry trade- specifically the Australian Dollar. The Bank of International Settlements (BIS) observed in a recent report that, “The role of short-term interest rate differentials in both the deprecations and their reversal has grown over time.” When you consider that the benchmark interest rate in Australia is now 4% and that interest rates in every other industrialized country (including Japan) or close to 0%, it’s not hard to connect the dots.

Earlier this month, the Reserve Bank of Australia (RBA) raised the benchmark by .25% for the fourth time since it began tightening. In an accompanying press release, the RBA stated that “The board judges that with growth likely to be close to trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average. Today’s decision is a further step in that process. It’s worth noting that the Australian Dollar barely budged, because investors had expected the move. The larger question was, and still is, the ultimate extent of RBA rate hikes and how soon it will get there.

Glen Stevens, Governor of the RBA, has himself indicated that ”rates are still 50 to 100 basis points, or hundredths of a percentage point, below normal.” If you do that math, that means that the RBA will hike rates to 4.5-5% before stopping. Other more bullish analysts think 5-6% is a more realistic expectation because it is closer to the long-term average of Australian rate hikes.

As to when the benchmark will reach that point, it’s anyone’s guess. Going forward, analsysts have pegged the lilihood of an April rate hike at 40%. Said one analyst, “It’s now a line-ball call; indeed, if you put a gun to my head . . . I’d guess that the RBA is going to hike again by 25 basis points in April.” Still, most think that the RBA won’t hike again until May. Added another analyst, “They are not indicating any urgency. We think they will go again in a couple of months. It could be three months, it could be two, our formal view is two, that may depend on how the inflation numbers look.” It’s too early to project when the next next (after the next one) hike will take place, because it depends on the timing of the first one.

At this point, most Australian economic data is trending steadily in the right direction. “Australia’s economy is starting a new upswing…Unemployment fell to 5.3% in January, not far above levels considered full employment for the economy…A rebound in construction and an investment splurge in the mining sector are expected to restore growth in the economy back to historic averages by the end of 2010. The RBA has indicated it expects inflation to remain within its 2%-3% target band.” Without drilling too deeply into any of the other numbers, there’s very little reason to doubt that the Australian economic recovery is genuine, which reinforces the notion that it is only a question of when – not if – the RBA further hikes rates.

In fact, the picture surrounding the Australian Dollar is almost a mirror image of the Japanese Yen. While the Yen looks destined to fall irrespective of the carry trade, the Australian Dollar looks destined to fall. While further monetary easing in Japan will give the Yen a second life as a funding currency, higher rates in Australia will once again make it a popular long currency. In short, “With commodity prices likely to remain strong and the spread between Australian and US interest rates likely to widen further its only a matter of time before the Australian dollar breaches parityagainst the US dollar.”

In fact, the Australian Dollar just touched a 13-year high against the Euro – though that is as much due to the Greek debt crisis and Euro problems as it is with Aussie strength. Meanwhile, the Australian Dollar has zig-zagged against the US Dollar, and is now in a rising trend following a recovery in risk sentiment. Whether it sustains this momentum depends largely on whether the RBA hikes rates next month.

Source: www.forexblog.org

India's FX reserves at $278.357 bn

India's foreign exchange reserves fell to $278.357 bilion as on Feb. 26, from $278.672 billion a week earlier, the central bank said in its weekly statistical supplement on Friday.

Changes in foreign currency assets, expressed in dollar terms, include the effect of appreciation or depreciation of other currencies held in its reserves such as the euro, pound sterling and yen, the central bank said.

Foreign exchange reserves include India's Reserve Tranche position in the International Monetary Fund (IMF), the central bank said.

Source : The Economic Times

Indian Rupees Surges Marginally

The Indian rupee eased by 3 paise against the US dollar on Tuesday after a six-day rally on fresh capital outflows by foreign funds and a firm US currency.
At the Interbank Foreign Exchange (Forex) market, the rupee fell by 3 paise to 45.55 a dollar.
The rupee closed higher by 8 paise at 45.52/53 a dollar in the previous session after hitting an eight-week high of 45.38 due to persistent selling of dollars by exporters and banks on continued capital inflows by foreign funds.
Forex dealers said the dollar gaining against other Asian currencies and a weak trend on stock markets weighed on the rupee sentiment.
Meanwhile, the Bombay Stock Exchange index Sensex fell by 41.31 points, or 0.24 per cent to 17,061.29 points in the opening trade on Tuesday.
Source : profit.ndtv.com

FX Trading – Pound pounded, Euro fading GBPUSD Weekly

FX Trading – Pound pounded, Euro fading
Ouch! The British pound got hammered this morning…and the euro ain’t acting as though the German/French plans to bailout Greece are going so well. Commodity currencies flat…but will likely take their cue from stocks again next week.

GBPUSD Weekly: The pound tested its weekly trend line and key retracement level this morning i.e. 61.8% from the old high to the credit crunch low. Next stop 1.35—the credit crunch low? Or time for a bounce?

EURUSD Weekly: Ditto. Testing a 61.8% retracement level (1.3400) from its high to credit crunch low? (see next page)

Source: www.babypips.com

advanced Currency Markets News

Key News

·                                 A plan led by Germany and France to bail out Greece with as much as €30 billion ($41 billion) in aid began to take shape amid intense and risky jockeying between Athens and Berlin over timing and terms. (WSJ)

·                                 Turcan Connell, which caters to rich families, expects the pound to lose between 20 percent and 30 percent against the dollar once investors turn their sights on Britain as the government sells a record amount of debt. Sterling slid to a 10- month low versus the U.S. currency today. (Bloomberg)

·                                 The pace of Chinese manufacturing eased last month, suggesting slower government spending and steps to curb credit growth could be taking some of the steam out of the world's third-largest economy. (Reuters)

Quotable - On China Holdings of US Paper

“It is a real toss-up as to which generates more bizarre comment in the international press: Beijing’s long-feared dumping of US Treasuries, or the use and value of the PBoC’s central bank reserves. The revelation last week that Chinese holdings of US Treasury obligations fell in December by $34.2 billion, to $755.4 billion, generated a frisson of fear and excitement, leading one prominent newspaper to worry that “If there is one thing that gets investors twitchy, it is the fear that China is losing its appetite for US government bonds.”

“And shouldn’t they get twitchy? After all this reduction in Chinese holdings of Treasury bonds comes from the USG’s TIC data, so it must be true that China is dumping dollars, right?

“No need to twitch, it means no such thing. First of all, the data from which this was derived indicates national ownership of USG bonds only to the extent that foreigners are directly registered holders. It says nothing about what happened to the large amount of bonds held by the PBoC and other Chinese investors indirectly or in street names. Those could have easily gone up by more than the reduction in bonds directly held by Chinese investors in their own name. If the PBoC had let maturing Treasury bonds get repaid, for example, and reinvested the proceeds into the USG bond market through another account, or in a street name, its total holdings would have actually increased even though its registered holdings would have declined.

“More importantly, the TIC numbers completely fail to disclose whether China’s reduced holding of USG bonds was matched by increased holding of other dollar assets, thereby increasing the pool of capital available to fund USG bonds by an amount equal to its reduced Treasury holdings. If Chinese investors decide to take on more risk, for example, they might sell USG bonds and use the proceeds to buy corporate bonds. Of course the seller of these corporate bonds will then have cash, which must be put to work, and ultimately this ends up back in the USG bond market.”

                         Source: www.babypips.com    Michael Pettis

GBP Performance

Pronouncements of Bank of England concern Pound’s Performance

The pound remained bearish this week as market sentiment towards assets in the U.K. didn’t manage to improve, after interest rates remained at a record low in the country, according to what most analysts expected to happen for today’s decisions.

After interest rates were maintained at 0.5 percent by the Bank of England this Thursday, the pound didn’t manage to revert a negative trend versus most of its main trading partners currencies, as the economic scenario overseas remain considerably better internationally than the investment conditions in the U.K. The euro was the only important currency to lose versus the pound after the ECB announced that interest rates are adequate for the present economic situation in the bloc, declining odds that rate hikes will follow in the next months, thing which is unlikely to happen in the U.K. as well.

The pound is very likely to find hard times ahead in the following months, with an eventual resuming of BOE’s asset-purchase program, affecting severely the pound’s rates if confirmed. As long as the Bank of England remains prudent and analyzes carefully the next steps to be taken, the pound may not fall sharply, but to expect a bullish pattern is out of question for the time being.

GBP/USD fell slightly in the intraday comparison at 1.5031 as of 21:21 from 1.5089.

If you want to comment on the Great Britain pound’s recent action or have any questions regarding this currency, please, feel free to comment below.

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