Daily Market Commentary: Wednesday, August 22, 2012

Domestic and International Highlights:

The Indian Rupee opened at 55.44 levels against the dollar. It closed at 55.56 levels on Tuesday after making the low of 55.45 levels strongest in August. The intraday range for the rupee is expected between 55.40-55.70 levels.

The rupee has been trading in a range since the start of August given the absence of significant domestic triggers and stability in Euro Zone. The trading volumes could be particularly low today as bankers unions called for one million banking employees to start a two-day strike.

The Asian peers are trading lower after Japan reported a wider-than-expected trade deficit. The euro rallied near its seven-week high on views the European Central Bank will act to rein in surging euro zone borrowing costs and policymakers will find ways to keep Greece on lifelines. The market will be eyeing the Greece Prime Minister will be meeting Euro group chief scheduled today which will be followed by the FOMC meet later.

India's annual consumer price inflation slowed slightly in July to 9.86%, helped by a drop in petrol prices at the pump, government data showed on Tuesday, but a drought in parts of the country pushed food prices higher.

The poor industrial growth demand the rate cut while on the other hand inflation is still above the comfort levels of the RBI makes rate cut difficult. The new finance minister agenda is to stimulate the growth while RBI to curtail the inflation.

The US treasury yield has dropped down to 1.76% after touching the 1.85% highest since May 2012. The Indian bond yields rose marginally on Tuesday as investors favored risk assets. The Bond yields have remained largely range-bound in August since hitting a one-month high of 8.28% on July 31. The benchmark 10-year bond yield closed at 8.25% compared with Friday's close of 8.24%.

Outlook: The Indian Rupee is in a range of 55 - 56 levels. Exporters still maintain covers near 56 levels and importers near 55.20-55.40 levels. The pair still stays USD/INR bullish target 56.00. Chart patterns show a major breakout is expected soon in USD/INR.

(Source: Corporate Communications Team, India Forex Advisors Pvt. Ltd.)