Tag Archives: USDINR

Forex, Remittances, SGD INR

SGD breaches the Rs.39 mark, Eyeing Rs.40!!

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SGD breached the Rs.39 mark in the interbank market today. Its been a volatile past few days with swings of around 5% with a downside move from 38.4 to 37.25 (3% downside) and then back up at 39.05 (upside of 4.9%).

The key events to have taken place in the plast few days have been a depretiation of SGD to 1.30 from the highs of 1.20 against the USD before the MAS policy meeting and then swing back to 1.26. The reason for the downmove was a possibility of MAS reversing its stand on strengthening SGD. However MAS indicated that it would allows gradual appreciation of SGD against the undisclosed basket of currencies making the slope of the curve less steep.
On the other side INR depreciated to 49.2 from the 45 mark – thanks to the undecisiveness in the global markets.

An obvious question that comes to mind is that can SGD touch the Rs.40 mark – I would say quite likely. All that needs to happen for the move to happen is some more chaos in the global markets. A weakening of INR to 52 against USD and SGD to 1.30 would result in a Rs.40 mark which is a 2.5% move from here.

Alternatively SGD could move to 1.25 and INR to 50 to get the same result.

But for either scenarios to play out there has to be increased uncertainity in the global markets. I would say hold on to SGD , if you already have, for next 2 weeks – you just might get a Rs.40 conversion.

Finance, Forex, Remittances

If Singapore heads to a Technical Recession what happens to SGD INR??

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Market has been rife about Singapore heading into a technical recession in 3rd Quarter of 2011. Prime Minister has revised the overall growth outlook downwards in the National Day speech and there has been a steady decline in the Electronics Export and other trading activities.

A technical recession occurs when a economy experiences negative growth for 2 consecutive quarters. To spur the economic growth I would expect the fiscal authority to ease out the rise in Singapore dollar to make exports more competetive. Lets look at what happened in  the last technical recession of 2008.

The Singapore dollar depreciated 14% against the USD and moved from 1.35 to 1.54 in a span of 6 months!!

Now what does this mean for SGD-INR that is had a spectacular run of 9% annualised appreaciation in past 4 years?

Simply speaking the SGD INR is a cross pair between SGD-USD and USD-INR therefore a weakening of SGD against USD would result in a decline in SGD – INR. The current USD-INR rate is 46.25 and SGD-USD is at 1.203. To get a better view lets see what happened to USD INR in the same period where SGD fell against the USD

USD – INR moved to 51.5  from 42 in the same time frame which is a gain of 20%.

Scenario 1

Using the two gain numbers of 14% and 20% the USD-SGD pair should move to 1.37 from 1.20 as of today and USD-INR would touch 55.5. The cross rate usinf these calculations would come out to 40.51 for SGD – INR.

I am sure all who have SGD holdings would get all excited seeing the figure, but before getting too excited lets look at other possibilities.

Scenario 2

The INR going beyond 50 mark will spell trouble for the Indian economy specially if the Oil prices remain around the $80 mark and the Reserve bank of India would intervene to stem  the rise. So a possible future rate where the SGD weakens 14% the cross rate would come out to 36.50.

Scenario 3

Another possibility is that the SGD depreciates around 7-8% and moves to the 1.30 mark then SGD INR would be at the 38.46, assuming that INR moves to 50 against the USD which is also the current rate.

Now lets throw in the Interest Rate of 10% for Term Deposits in India – for a 6 month period from the current rate of 38.4 any money invested in India would yield 40.32 in target rate (tax free) which is close to the rates in scenario 1. On a post tax basis the amount would grow to yield 39.74.

So we have the facts lined up and no matter what the scenario is, repatriating money to India makes a lot of sense.

Economics, Finance, Forex, Remittances

USD INR Carry – have you thought about it?

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Forex trading and carry trade go hand in hand. A few years back it was USD against JPY, then the turn came for AUD against USD and recently people have been talking about EUR against USD on the prospects of US interests remaining low and Euro zone increasing rates to reign in inflation.

The key in all scenarios being large interest rate differentials that allow cheap borrowing in one currency and invetsing in the other. The usual trend is that the currency with the higher interest yield slowly gains against the lower interest rate currency.

AUD-USD moved from lows of 0.80 to 1.05 range gaining whopping 25%, the theme was similar for USD-JPY or EUR-USD.

The Reserve Bank of India has gradually raised interest rates to 7.5% from lows of 3.5% over past 2 years and US still is at lows of below 0.5%. USD INR on the other hand has fluctuated between 44 – 47 in the same time with the

Now given that the interest rate differential is 7% and how other currencies have gained with the carry trade there is no reason why something similar would not happen with USD – INR. Indian Rupee should be strengthening against USD in line with how other currencies have performed.

Yes INR is a currency of a developing country and uses USD to pay for the Oil that it imports but that still does not completely negate the interest rate differential.

Using a simple calculation 1USD invested in India @ Rs.45 would grow to Rs48.37 in one year and seeing the trend of USD-INR fluctuating in a close 3% range there is every reason to enter the USD-INR carry trade.

What does this mean in layman terms?

1. It makes sense to borrow in US and invest in India

2. If you are earning in USD and do not have any need to hold US dollars its beneficial to remit to India and invest

3. If you want to trade then a USD INR carry looks like a low risk trade