RBI Cracks Down on Forex Speculative Trading: sources | Reuters

RBI cracks down on forex speculative trading: sources | Reuters: "(Reuters) - Concerned about the rupee's fall to a record low, the Reserve Bank has discreetly phoned trading desks with unusually explicit messages to cut their speculative positions in the currency, said three senior market participants with direct knowledge of such calls."

While the Reserve Bank of India (RBI) regularly monitors positions and flows in the currency market, the sources said it was unusual for the RBI to call so often or state so explicitly that banks should cut their intraday net open position limits - or their outstanding positions in futures and forwards markets.

A bank's net open position is its aggregate exposure to foreign exchange risk.

The pressure highlights the limited options for a central bank that has seen the rupee hit hard in last month's emerging markets rout, but is reluctant to sell too much of its US dollar foreign reserves given they are enough to cover only seven months of imports.

While the RBI has succeeded in curbing speculation in India's roughly $8-9 billion currency futures and forwards markets, it also runs the risk of choking off liquidity and creating volatility, making it harder for banks to manage genuine client currency needs.

It could also drive further currency trading to offshore markets such as Singapore via non-deliverable forwards, beyond the RBI's reach. Non-deliverable forwards are a derivative instrument that allow investors to speculate on a currency's movement without having to hold the currency.

"You are in this new environment where they say jump and you say how high. You don't take them on," a senior official at a large bank told Reuters.

The RBI did not have any immediate comment.

JUNE SWOON

The sources, none of whom wanted to be identified discussing private conversations with the RBI, said the calls became more frequent around the second week of June, when the rupee started its steep descent that culminated in a record low of 60.76 against the dollar on June 26.

The decline was sparked by fears of an early end to the U.S. stimulus measures that hit most currencies, but the rupee was among the worst performers as the country's current account deficit hit a record high of 4.8 percent of gross domestic product in the fiscal year ended in March.

The RBI has called as often as 10 times a day, according to one of the sources, from around a couple of times a trading session during normal days. At times, the calls have gone beyond queries on flows and positions.

"There were a couple of days they did more than that. They said 'cut your positions'," one of the sources said.

India does not have data on net open positions, but multiple traders have told Reuters that banks had reduced their net open positions as a result of the RBI's requests.

In prodding banks to cut their speculative trading, the RBI is likely to be aiming to make its thus-far mild interventions more effective, traders said. With less liquidity, any dollar sale by the central bank would have a bigger market impact. Fewer open positions also make it harder to short the rupee.

The covert supervision of currencies reflects the RBI's longstanding caution when it comes to explicitly imposing measures. The last time it imposed outright curbs on net open positions was during a rupee plunge in late 2011.

Late in June, after stepping up its monitoring, the RBI mandated foreign banks limit themselves to placing hedging-related trades on onshore forward markets on behalf of overseas clients and not use existing client positions to make other trades, such as for proprietary trading.

The RBI's active management of currency markets comes as offshore trading of rupee forwards, especially in Singapore, is on the rise.

Daily average turnover in the offshore non-deliverable forward markets is estimated to have grown to between $4-$4.5 billion, according to HSBC's 2013 Emerging Market Currency Guide, higher than its estimate of India's onshore forwards volumes of $3 billion.

Futures, which trade on exchanges, reach around $5-6 billion average daily.

"Some people will obviously find it easier to go to the NDF market rather than deal with the constraints here. So in some sense you drive away business from onshore to offshore," said one of the sources.

Ghana’s Foreign Exchange Market Dries Up Before Bond Sale

Ghana’s Foreign Exchange Market Dries Up Before Bond Sale - Bloomberg:

Currency traders in Ghana are waiting for the West African nation’s second sale of Eurobonds to revive business as a scarcity of dollars halted buying after the cedi reached a record low.
“The interbank market is virtually dead,” Sadiq Abubakar, a currency trader at International Commercial Bank in Accra, the capital, said by phone yesterday. “We’re hoping to see if the Eurobond comes to fruition, then we will see some liquidity in the market.”
Finance Minister Seth Terkper said Ghana plans to sell $1 billion of international debt this month, following Rwanda and Nigeria as African nations tap investor appetite for assets from the world’s fastest growing region after developing Asia. Ghana became the first sub-Saharan African nation outside of South Africa to issue Eurobonds, selling $750 million in 2007. Foreign reserves dropped to $4.99 billion in April from $5.01 billion in March, according to the Bank of Ghana.
The central bank sells dollars to lenders at irregular intervals based on market demand, which is led by manufacturers seeking raw material, oil importers and traders, Abubakar said. Ghana’s economy, the second-biggest in West Africa, is forecast to grow 8 percent this year.
“I am able to meet less than 10 percent of client demand in a day,” Abubakar said.
Currency trading among banks ceased about two weeks ago because of the lack of dollars, said Nikoi Kotey, a trader at CAL Bank Ltd. in Accra. The cedi weakened 0.7 percent to match a record low 2.04 per dollar as of 7:01 a.m. in Accra.
Fifth Worst
“Nobody is quoting rates because everybody is seeking to buy,” Kotey said.
The cedi may strengthen with proceeds from Eurobonds, pushing the currency below the 2 per dollar level, Kotey and Abubakar said.
“If the market becomes liquid, it will impact the currency,” Abubakar said. By the end of the year, the cedi may reach 1.99 per dollar, he said. The currency has declined 6.6 percent this year, the fifth-worst among 24 African currencies tracked by Bloomberg.
Ghana’s trade deficit worsened to $334.6 million in the first quarter from near zero a year earlier, as the world’s second-biggest cocoa grower and Africa’s second-largest gold producer saw exports drop 7.3 percent, the central bank said May 22. The current account, the broadest measure of trade in goods and services, widened to a deficit of $1.1 billion in the first three months from $986.6 million a year before, the Bank of Ghana said.
Yields on the nation’s debt due October 2017 fell 33 basis points, or 0.33 percentage point, to 6.41 percent as of 9:06 a.m. in London. That compares with 4.95 percent at the end of the 2012.
Adams Nyinaku, head of treasury at Bank of Ghana, wasn’t available to comment, said a woman who answered two calls made to his office yesterday and didn’t give her name.

EUR/USD outlook, Friday July 5th; Range trade with bearish bias

EUR/USD outlook, Friday July 5th; Range trade with bearish bias: "If medium-term consolidation is to continue then support levels near 1.2800 should hold (see chart).  Short-term EUR/USD trend is bearish with solid resistance now at 1.3030 (see chart). EUR/JPY is bit directionless at the moment but big macros have been selling rallies. EUR/GBP is still capped below .8600. EUR/AUD looks like it will again have a weekly close below 1.4400 and with macros also booking profits in this cross, a retracment phase towards 1.3500 looks possible.
Conclusion: The technical picture suggests a 1.2800/1.3025 consolidation range and the crosses are suggesting a bearish bias."