DAILY FOREX REPORT FROM RESEARCH VIA 28/7/2014

MARKET HEADLINES

• Rupee ends slightly weaker after hitting 1-1/2 week high  
  The rupee ended weaker on Thursday, retreating from a more than one-week high hit earlier in the session on the back of month-end dollar demand from importers and possible intervention by the RBI. The rupee had inititally gained on sustained foreign fund inflows into the stock and debt markets and after India on Wednesday allowed foreign institutional investors to hold more government debt while reducing the portion available to long-term investors. But that was not enough to sustain the gains given heavy dollar buying by state-run banks to meet month-end import payment demands of clients, with some traders citing potential dollar buying by the Reserve Bank of India."There was good dollar selling by foreign banks at every level while there was good bidding from the state-run banks," said A. Ajith Kumar, a foreign exchange dealer with Federal BankBSE -4.44 %. "We are likely to continue seeing a 59.80 to 60.50 range for some more . The partially convertible rupee closed at 60.12/13 per dollar, compared with 60.0925/1025 on Wednesday. The unit hit 59.98 during the session, its strongest since July 14. Overseas buying of shares and debt continued with inflows of $139.5 million and $136.2 million respectively on Wednesday, taking total investments across the two segments to $24.97 billion so far in 2014. Foreign buying is helping prop up share markets, which rose to record highs on Thursday. In the offshore non-deliverable forwards, the one-month contract was at 60.32 while the three-month was at 60.79.
• China's yuan breaks three-day rising streak, guided by weakermidpoint  
  China's yuan snapped a three-day firming streak on Friday, after the central bank set a weaker midpoint for the third consecutive day in line with global strength in the dollar. Spot yuan changed hands at 6.1960 per dollar near midday, down 0.02 per cent from Thursday's close at 6.1949. The yuan hit a three-month high on Thursday. The People's Bank of China ( PBOC) fixed the official midpoint at 6.1597, down 0.03 per cent from the previous day's 6.1579. It is the lowest level in more than two weeks. "We saw some big banks bidding dollars in the morning, but we didn't see any corporate demand for dollars," said a trader at a Chinese bank in Shanghai. "The yuan will strengthen gradually in the coming months supported by both China's economic fundamentals and technical analysis," the trader said. China's factory sector turned in its best performance in five months in May, a preliminary HSBC survey showed on Thursday, though overall manufacturing growth still contracted slightly. The world's second-largest economy grew faster than expected in the second quarter as a burst of government stimulus paid dividends and recovered from an 18-month low growth rate in the first quarter. Traders said the central bank has stayed on the sidelines for quite some time after the sharp weakness of the yuan it engineered at the beginning of the year, and the current FX level seemed comfortable to the regulator.

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