Is the reversal in full swing, will the US Dollar continue to recover vs the Indian Rupee? Is the gold bull run over?
The Indian rupee hit an 18-month low Tuesday shedding 49 paise to a dollar to breach the Rs.44-mark for the first time since March last year.

The Indian central bank, Reserve Bank of India's rupee-dollar reference rate was Rs.44.07 Tuesday. The reference rate is based on 12 noon rates of a few select banks in Mumbai. The Rupee vs US Dollar trade.

The Indian currency fell for the second day in a row after shedding 20 paise Monday, ending two days of gains on the back of steady selling by foreign institutional investors - in equity markets and a strong dollar overseas.

'The dollar will keep strengthening till crude oil prices come down to at least $100-$105 per barrel,' chartered financial analyst and portfolio strategist Mohan Krishnan told IANS Tuesday.

'Once the $6 billion or so FII - funds that have gone out of the system this year begins to return, the rupee will be able to neutralise the strengthening of the dollar overseas,' said Krishnan, who heads the Delhi-based Price Investment Management and Research Service.

FIIs have been net sellers throughout 2008 and their net redemption this year accounts for about 11 percent of the cumulative investments by them since they first started investing in India in 1993.

Even Tuesday, the net sales of FIIs on the equity markets were Rs.5.72 billion -.

Sell-off in equities and month-end dollar demand from oil companies aided the fall of the rupee.

The Indian currency touched an all time low of Rs.49.05 to the dollar May 16, 2002. The rupee lost 12.3 percent in 2007.

This year, it has depreciated 11.8 percent till date.

The rupee had hit a high of Rs.39.27 Nov 7, 2007. Since then, it has fallen steadily despite a few fluctuations in between.

Since July this year, however, the rupee has been falling rather sharply due to the strengthening of the dollar against all major currencies such as the euro, pound sterling and the Japanese yen.

'Large global investors have been deploying their funds either on crude oil or on the dollar,' Krishnan said.

Consequently, when crude oil prices went up the dollar weakened and now with crude oil prices weakening since peaking at about $147 per barrel mid-June, the dollar is strengthening.

'The Indian currency should hit around Rs.45 to the dollar before climbing again,' Krishnan said.

It also depends on whether the RBI will sell dollars in the market and to what extent.

A weakening rupee is good for net exporters such as IT firms, but importers, particularly the oil firms, are likely to be badly hit, especially because they cannot take advantage of the recent fall in the price of crude.

India imports 70 percent of its oil needs. Since all oil purchases are in dollars, importers now have to pay more rupees for the same amount of dollar.

A higher import price will also push up inflation, which is now at a 16-year high of 12.44 percent.

The central bank is, therefore, likely to intervene once the rupee touches the 45-mark, to keep down the oil bill and keep inflation in check, analysts said
US DOLLAR - INDIAN RUPEE - GOLD and SILVER

Indian spot gold ended marginally lower weighed down by a stronger rupee and weaker domestic demand.

'Domestic demand has turned weak once again with most of the traders waiting for prices to correct to $850 levels,' Prithviraj Kothari, managing director of RiddhiSiddhi Bullion Ltd., said.

In London gold steadied near $890 per ounce, with the dollar's firmer tone over the weekend and a slight retreat in crude prices failing to provide the market with definite direction.

In Mumbai gold of 0.995 purity closed 15 rupees lower at 12,190 rupees per 10 grams and gold of 0.999 purity closed 15 rupees lower at 12,245 rupees per 10 grams.

Silver of 0.999 purity closed 50 rupees higher at 24,745 rupees per kilogram.
Indian analysts had mixed views on gold this week ahead of a slew of economic indicators in the U.S. that promised to keep the markets volatile.

"The trend is confusing... the currencies are keeping it volatile," said an analyst at IL&FS Investsmart Commodities Ltd, who recommended only intraday positions to narrow down risk.

The dollar, with which gold generally has inverse relationship, was stronger on Monday in the overseas markets, but several U.S. indicators were under watch to confirm whether the economy can stave off recession, analysts said.

Meanwhile, the rupee unexpectedly strengthened, after a 13-month low on May 22 that impacted gold prices. The rupee's value against the dollar affects gold, as most of the commodity is imported and paid for in dollars.

Indicative data this week will include the manufacturing index, factory orders, jobless claims and construction spending in the U.S.

Crude oil, that usually signals inflation and boosts the safe haven appeal of gold, was also giving gold a leg up, some analysts said.

"Crude oil's correction is overdone, and because inflationary fears remain, gold could rise," Somnath Dey, incharge-metals and energy research, at Religare said.

But another analyst said crude oil had more steam to rise after its recent rally that saw prices climb above $135 a barrel.
We also view the Rupee/Euro and Rupee/Yen as it impacts the Sensex Stock Market Index at the Bombay Stock Exchange
The steep fall in the value of the rupee against the dollar has come as a relief to Indian expatriates who have suffered a long period of unfavourable exchange rates.

Indians living in the UAE are now able to send home more rupees with their dollar-pegged dirhams.

On Tuesday, the exchange rate hit a record low of Rs12.54 to the dirham - a huge difference from the rate that prevailed a year ago. The huge outflow of foreign institutional investors' funds from the Indian stock market and heavy dollar demand caused the steepest intra-day fall of the rupee in a decade.

Pakistan's currency has also been weakening against the dollar due to high import payments and reduced inflows of foreign funds.

There was a slight upturn yesterday after the Reserve Bank of India sold dollars in the foreign exchange market to support the rupee and assist the partial recovery of the Asian stock markets. In early trading the Indian currency appreciated by Rs0.6 against the greenback to reach Rs46.28 per dollar. However, market participants expect the rupee's downward trend to resume.

Money exchange houses said Indian expatriates were among the biggest beneficiaries of the strengthening of the dollar. Remittances to Asian countries such as India, Pakistan, Sri Lanka, the Philippines, Bangladesh and Nepal are traditionally high during Ramadan.

"The rate is very low today and you will get Rs1,000 for just Dh78.9," said G Subramaniam, Assistant General-Manager of City Exchange, the money exchange arm of the State Bank of Travancore. "The market expects the Indian rupee to go down further. It comes as a great boon to the non-resident Indian [NRI] community here.

"Banks, financial institutions and others are buying dollars in large quantities and the pressure on the Indian rupee is unprecedented. Unfortunately the favourable exchange rate has come at a time when most salaried expatriates have already sent money for Onam, Ramadan and other requirements. The exchange rate for Rs1,000 on Tuesday was Dh79.54 compared to Dh92.5 almost a year ago. Most NRIs who have remitted money to India for real estate have not waited for the rupee depreciation. If the rupee goes down further it will be good for remittances after the next salary payment."

He said middle-class NRIs had been unable to send money home due to the escalating cost of living in the UAE but the exchange rate switch meant they would be able to remit cash once more.

Sudhir Shetty, General-Manager of UAE Exchange, said: "In the past 18 months the rupee-dollar exchange rate has touched an all-time high of Rs39.8 and at the current rate of Rs46.28 we are seeing a total reversal of the long prevailing trend."

He said Indian importers had started purchasing dollars to cover their oil import requirements because the oil price had fallen below $100 per barrel.

"The Indian and global stock market crash also precipitated the rupee's fall because a lot of fund invested in the local and international stock markets could not be withdrawn to cover dollar requirements. Dollar demand has gone up while the supply has dried up."

The Pakistani rupee has lost 19.6 per cent against the dollar this year and foreign currency reserves have fallen sharply because of a deteriorating balance-of-payments position. In terms of remittances from the UAE, Pakistanis and Bangladeshis are the two largest expat communities.

"Their remittances are normally high during Ramadan and the strengthening of the dollar could have increased their purchasing power," said Shetty.

Blog Posting on the Indian Rupee / Chinese Yuan controversy. Whuch will float freely first and who will ultimately be the true economic powerhouse in Asia.

It has only been a few years since Asia bulls have been touting the arrival of the Chinese Century, citing that nation's enormous potential.
Now, get ready for predictions of the India Century.
That, in fact, was the title of a recent white paper by the Chicago-based consultancy Keystone-India, founded by a group of top economists from Ernst & Young who believe that India is on track to surpass China in growth. "We believe this is India's moment," declares Keystone Chief Economist William T Wilson.
China has a two decade-long track record of 9.5% average annual growth, exports 10 times as much as India, and dwarfs India as a magnet for foreign investment.
By contrast, India has achieved an annual growth rate of 7% or higher only seven times in the past two decades. And largely because of its unruly politics and stifling bureaucracy, it wasn't long ago that economists bemoaned the "Hindu growth rate," implying the nation is simply culturally incapable of achieving high growth.
Even under Keystone's projections, India wouldn't match China's current hypergrowth rates for at least another 15 years. And even by 2050, China's economy would be bigger measured in US dollars.
But longer term, Keystone contends India will be in a stronger position. It projects that China's average annual growth will peak at 8.8 per cent over the next five years, and then gradually trend downward to under 7 per cent in the 2020s and around 4% by the 2040s.
India's annual growth is projected to rise to around 7.3 per cent by 2010 and stay over 7 per cent until the mid-2030s, and still be in the 6% range until 2050.
What's more, Wilson contends that Keystone's forecasts are conservative.
Demographics
The biggest reason India has more long-term growth potential is simply that its population is younger and is growing more quickly than China's. Currently, China has 300 million more people than India.
But because of its very low birth rate, largely due to the one-child policy, China's population is expected to peak at around 1.45 billion by 2030.
India's population is expected to increase by 350 million by 2030, more new people than the US, Western Europe, and China combined. India will have 200 million more people than China by midcentury.
What's more, China's population is aging rapidly. As a result, the number of working-age Chinese is projected to peak in 2020 and start declining steadily thereafter, while India's workforce will keep growing for at least four more decades.
However, India's fertility rate also is declining, meaning future families will have fewer children to support and more to spend on consumption.
Development experts call this combination of a growing workforce and declining fertility a 'demographic dividend,' which helped power explosive economic growth in East Asia's Tiger economies from the 1960s through the early 1990s.
Capital Efficiency
The big driver of China's economic growth has been massive investment, equal to 40% to 45% of gross domestic product a year, an extraordinarily high rate on world standards and twice the percentage of India's.
In 2004, investment in China was equal to half of its $1.5 trillion in GDP. In that context, China's 9.5% growth rate that year shouldn't be too surprising.
"It is staggering how much investment was needed to power Chinese growth in recent years," Wilson notes. "Any nation investing half of GDP in fixed-capital income looks a lot like pre-crisis Asia."
India, however, gets much more bang for the rupee. It has achieved 6% average growth with an investment rate half that of China's, around 22% to 23% a year.
Investment Growth
Many signs point to big increases in investment in India, Wilson says.
In fact, he estimates investment in India could reach 35% of GDP within a decade, which would enable it to match China's 9% plus growth. One reason is that the savings rate in India rose from 23.5% of GDP in 2001 to 28.1% in 2004.
And because of its growing workforce and the decline in family size, India's savings rate should continue to rise to a projected 37% in 20 years.
Since investment is highly correlated to domestic savings, that should translate into higher investment and economic growth.
Meanwhile, the rapidly aging population of China means that its savings rate also is likely to drop in the future, as it has in most other nations with graying workforces.
Second, India thus far has gotten by with minimal foreign investment. Keystone notes that in the past four years alone, China has drawn $200 billion more in foreign investment.
However, India is planning to open up many long-protected sectors that have great allure to foreign investors and that could draw huge inflows of money.
They include telecom, where Indian demand now is growing even faster than China's, commercial real estate, and department stores. Although some of the reforms have stalled recently due to domestic political opposition, Wilson believes the government will prevail.
"If you look at the institutional changes and the number of industries that have liberalised over the past five years, the pace has been phenomenal,he says.
Wilson predicts India's real estate sector will draw a huge influx of money from foreign hedge funds, and liberalisation of retail will be 'the real big bang' for the economy.
New Entrepreneurs
Indian industry so far has been led by many of the big business families and conglomerates that dominated when India was still a quasi-socialist, heavily regulated economy.
They generally have done a good job of taking advantage of new opportunities offered by liberalization since the early 1990s. But the more dynamic companies in India are smaller ones that are led by new generations of entrepreneurs who take greater risks or are more connected to the global economy.
These new companies also have more creative managers, argues Debashis Ghosh, another Keystone partner who worked at Ernst & Young.
Keystone focuses on researching mid-sized Indian companies with $10 million to $100 million in annual sales.
"The bigger companies are still led by oldschool types who used to depend on access to government and got huge when there was nobody else in the game.
"Because they had scale, foreigners had to deal with them," says Ghosh.
"Now, though, the top talent from the Indian Institutes of Technology and the Indian Institutes of Management are flowing into the mid-sized sector. That is like getting a management team of all Wharton and Massachusetts Institute of Technology grads."
As a result, he contends that the Indian companies of the future are more dynamic than those of China, where management tends to be weak.
Higher Productivity
India has averaged respectable productivity growth of 2.5% a year over the past two decades. But that can grow sharply, thanks to liberalization of many industries, a literacy rate that has risen from 18% in 1951 to 65% now, and India's rising openness to foreign trade, which has jumped from 15% of GDP in 1991 to 26% now.
Manufacturing Surge China dwarfs India as a manufacturing power, especially for export.
And it will be a long time before India, with its inadequate infrastructure and components supply base, will be a serious export rival. But in recent years, India's domestic manufacturing industry has been growing strongly.
What's more, a number of Indian companies are especially strong in high-end manufacturing, such as auto parts, power generators, and medical equipment, that requires a lot of engineering.
In terms of quality and efficiency, several Indian auto parts companies are on par with the US.
"If you look at engineering work across the board, in industries from pharmaceuticals to telecom, what India is doing is an order of magnitude beyond what China is doing," says Keystone's Ghosh.
Anyone who visits both countries today may find it hard to imagine India overtaking China in economic performance.
But when you look at the fundamental drivers growth in the workforce, fixed investment, and productivity -- over the long run the prospect looks a lot more plausible.
Courtsey:Specials.rediff.com
Excerpted from: Chindia-How China and India are Revolutionizing Global Business by Pete Engardio

US DOLLAR / GOLD Markets / Indian Rupee