US Dollar:

Market sentiment is hugely US dollar negative. The Fed which raised the US interest rate to 2.0% pa in November is expected to raise rates again on December 14th and is expected to continue to hike rates throughout 2005. The Fed fund rate is expected to end 2005 at 3.5% pa, the US current account deficit is expected to continue to exert a drag on the dollar, and the same is approaching 6% of GDP which is largely financed by Asian government US bond purchases.

 Japanese Yen:

As expected the pressure from high oil prices have started fading away as the price has come down to $47.5 per barrel from $52. Yen which started the year at 106 levels ended trading at 103.38 levels for the month of November 04. Yen is expected to trade closer to 100/USD during 2005. Consumer spending rose quite strongly and should continue to hold up on good job creation and good consumer confidence. Investments are expected to pick up soon and Yen is expected to trade strong during the coming months.

Euro:

Euro started trading for the year at 1.24 levels. Euro trading saw a low of 1.20 levels during the year but in the month of November it has battered the US currency to trade high at 1.33 levels. The ECB now looks less likely to raise Euro zone interest rate in 2005, while the Fed will continue to tighten. Though the Euroland growth does not seem to be picking up as expected the weakening of US dollar against major currencies will weigh. Accordingly, longer-term trend should be for stronger Euro as the US dollar struggles against still high current account deficit. The Euro is expected to trade between 1.30 to 1.40 levels during 2005.

Sterling:

Cable which started its trading lower for the year at 1.82 levels traded high at 1.91 levels during November 04. Though now the Bank of England has emphasized the downward risk to its central projection for growth and inflation, market still believes that there will be one more rate hike in Q1 2005. Sterling is expected to trade stronger against both Euro and Dollar during coming months. Like other major currencies Sterling also traded 12 years high in the month of November against the US dollar.

Indian Rupee:

The negative concerns on the coalition government are over and with growth on track, looks like investors are positive on India. With continuous inflow into the equity market and fading concern over the higher oil prices we expected USD/ INR to take up appreciating path. INR which started for the month at 45.31 traded higher at 44.62, an appreciation of 1.5% during the month of November. In near term we expect INR to trade below 44 levels.

Domestic Currency:

Nepali rupee was seen trading stronger during the month as INR appreciated against the US Dollar. Nepali Rupee appreciated by Rs 2.30 paisa during the month of November. The USD/NPR which started trading at 74.05 for the month appreciated against the US dollar and traded at 71.75 during the month end. As we are expecting to observe  appreciation in USD/INR trading levels to continue we expect Nepali rupee to appreciate against the US dollar in coming months.

Local Market:

T-Bills and Money Market:

91 days Treasury bills which started trading at 1.7498% pa in the beginning of November 2004 was trading higher at 2.4360% towards the month end. Due to the rise in the margin of SLF rate by NRB adding 2% instead of .50% (above the average rate of 91 days T/bills) during the start of the fiscal year 2061/2062 the SLF rate is currently trading at 4.4360%. The higher SLF rate attracted higher interbank call money rate and the same traded close to SLF rate but NRB helped pump in LCY worth 2.0 billion by issuing 7 days REPO auction which traded at 3.1375%, which in turn helped the interbank call money rate to trade lower between 3.75% to 4.25% towards the  month end. Though the 364 days T/Bill traded close to 3.0% during November, 91 days T/Bills are still trading higher at 2.4360%, in near term if NRB issues lower volume of 364 days T/Bills or just rolls over the 91 days maturing T/Bills we will again be observing deteriorating average rate of  91 days T/Bills.

Disclaimer:

This publication is for information only and is not to be construed as an offer to buy or sell investments. Nabil Bank Limited, whilst considering the contents to be reliable, takes no responsibility for any individual investment decisions based thereon.