Daily Market Commentary: Friday, September 21, 2012

Domestic and International Highlights:

The Indian rupee opened stronger at 54.15 levels against the dollar. It was seen closing yesterday at 54.38 levels. The intraday range for the rupee is expected between 54.00 - 54.45 levels.

The Rupee fell to its lowest in nearly a week on Thursday as a key ally of the country's ruling coalition withdrew its support; rising worries that the government may roll back big ticket reforms such as the hike in diesel prices and FDI in retail.

The Investors are worried that the Indian government could retreat on some of its measures and fear that the increasing political instability could threaten future reforms in sectors such as pension and insurance.

The Asian shares and the Euro steadied on Friday as markets consolidated after recent sharp moves triggered by central banks' stimulus steps. The manufacturing reports from the euro zone, China and the United States showed factory activity remained tame, evidence of sluggish growth globally.

The Asian stocks are heading for the first drop since the week ended Aug. 31 after data from China and Europe to the U.S. raised concern about global growth.

The Spain's bond auction yesterday was able to raise funds above its target. But still it remains under pressure as the government hesitates to seek an international bailout, a condition for the ECB to buy Spanish bonds. It has now secured 82% of its planned medium- and long-term borrowing for this year, but it faces a refinancing of 27.5 billion Euros in October and needs another 10 billion Euros to offset falling revenues, soaring unemployment and pension payments.

Greece continues its struggle to secure approval of restructuring plans from its global creditors in exchange for a bailout to keep the country solvent.

The US 10yr treasury yields is trading higher at 1.77%. The Indian bonk 10-year bond yield fell 1 basis point to 8.16%. The markets were also comforted after Reserve Bank of India deputy governor said that the central bank has not ruled out injecting liquidity via bond purchases in open markets, despite cutting the cash reserve ratio this week.

Outlook: USD/INR is unable to maintain below 54.00 levels consistently. Rupee still maintains a very strong medium term support at 53.10-53.50 levels. Importers were asked to cover partially when earlier stop loss of 54.10 got triggered. Next stop loss for importers to cover further would be 54.60 levels. Break of 55 would make mean the USD/INR correction has ended. Uncovered Exporters cover partially for short term at 54.50 levels.

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