Daily Market Commentary: Friday, August 24, 2012

Domestic and International Highlights:

The Indian Rupee opened weaker at 55.35 levels after closing yesterday at 55.26 levels against the dollar. The Rupee was seen strengthening to 55.12 levels on account of shift in global sentiment. The intra -day range for the rupee is seen between 55.20-55.60 levels.

The Reserve Bank of India (RBI) said on Thursday that fighting inflation is still their concern and the cornerstone of its monetary policy. RBI also urged the government to cut expenditure indicating it was unlikely to act soon to ease rates despite slowing growth, reducing the market expectation of a rate cut.

The Asian peers are trading lower on Friday amid signs of slower growth in China and on concern Europe's leaders aren't making progress in solving the region's debt crisis. The business surveys in China and the euro zone showed the world economy was slowing down.

The ECB earlier this month indicated it may resume buying government bonds to calm Euro zone debt markets, and investors have been building up hopes that the ECB will soon provide details of its bond-buying scheme, as early as at its September 6 meeting. If no announcement comes from the Euro leaders there could a reversal of sentiment across the global market soon, which could make the euro to erase its gain.

Yesterday's meet of Angela Merkel and Francois Hollande has presented a united front towards Greece telling that it should not expect leeway on its bailout agreement unless it sticks to tough reform targets which lessen the hopes of Greece Prime Minister Samaras' hopes that his country might be given four years instead of two to push through painful economic reforms.

The US treasury yield is trading lower at 1.68%. The benchmark 10-year bond yield rose 1 bps to 8.23% from its previous close. The India's debt markets are seeing some support as the liquidity deficit has eased. The bank predicted liquidity would again tighten in September when corporate taxes are due, which would make the Reserve Bank of India to buy bonds via open market operations.

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.)