DAILY MARKET COMMENTARY: Wednesday - February 6, 2013

The Indian Rupee opened at 52.96 levels after closing yesterday 53.12 levels. The Intraday range for the rupee is seen between 52.85 - 53.25 levels.

The Indian rupee strengthened to its highest closing level in three-and-a-half months on Tuesday, helped by foreign inflows ahead of the government stake sale in state-run power producer NPTC, The government will sell 9.5% stake in country's largest power producer NTPC on Thursday nearly at 7% discount to the current market price. Other stake sales before the fiscal year ends in March include state trading company MMTC Ltd and steelmaker Steel Authority of India Ltd.

For the current fiscal year, markets mania has been with growth, interest rates, fiscal deficit and movement on policy and reforms. Finally, the government has done something on the policy front and it also seems serious about controlling the fiscal deficit. It is, therefore, not surprising that the recent cut in interest rates and cash reserve ratio looked almost inevitable.

The RBI’s emphasis has suddenly turned to the current account deficit (CAD) which now seems to be a major consideration for future monetary policy action. The difference between imports & exports can’t be reduced in a day or a month. In current situation, exports cannot be raised as case the global economy is in a slowdown phase. With a negative growth being registered it will be difficult to overall growth in exports.

Imports are increasing because of the oil bill and some heightened demand for gold. The government has raised the duty on gold to control its consumption. Beyond this, nothing can be done as the trade account is free. The export-import policies seek to give incentives to various sectors, but demand is the issue here which will again impact the CAD.

The Asian markets are trading higher as solid euro zone data supported the risk sentiment. The upcoming ECB Monetary policy on 7th Feb would be keenly eyed. The ECB is expected to keep interest rates unchanged at its policy meeting on Thursday, but its president may face a grilling over an Italian banking scandal. The election this month in Italy would also be crucial as the polls reflect former Prime Minister Silvio Berlusconi regaining ground against Mario Monti.

The US 10 year Treasury yield rose to 2.01%. The Indian federal 10 year bond yield closed 2 bps lower at 7.92% then the previous close of 7.94%.

Outlook: As suggested earlier, exporter should wait to initiate exports covers. In case they cover they should only look at long term covers over 9-12 months where premiums are almost all time high..  Importers should make the most of the correction in the market and Importers should cover on dips as and when comfortable and keep stop a loss of 53.50 levels maximum. OVERALL: USD/INR pair still maintains bullish.

EUR/USD:  The Euro is trading at 1.3594 levels against the US dollar.  The euro appreciated after the region’s service PMI came out better than expected. The ECB’s balance sheet saw a positive revision after the early loan repayments by the euro-area banks. The speculation that the ECB is less worried about the euro appreciation also supported its gains. On Thursday, the European Central Bank has a monetary policy meeting which will be watched closely for further cues. The near term support is at 1.3400 and resistance is at 1.3700.

 GBP/USD: The British Pound fell to its five month low against US Dollar. Currently, it is trading at 1.5661 against the US Dollar. It is trading down despite the uptick in the Service PMI figures which came above 50 levels. It means the pound is reacting to developments in euro and neglecting the local data. The pair is expected to find a support near 1.5600 levels and the resistance is near 1.5845 levels. 

AUD/USD: The Australian dollar fell below its three months low and broke the level of 1.0400. The Australian Dollar currently is trading at 1.0351 levels. The key reason for this was the RBA’s statement that it might cut the rates in future when needed. In its policy meeting yesterday, the Reserve Bank of Australia kept the rates unchanged. Adding to this, the retail sales for the month of February also came on a negative note at 0.2% versus the expectation of 0.3%. The near term support is seen at 1.0315 levels while immediate resistance is at 1.0485 levels. 

USD/JPY:  The Yen is trading at 93.84 levels. The yen is seen continuing with its depreciation against the US dollar. The yen saw a fall after the Bank of Japan Governor Shirakawa said he will step down on March 19. It is expected that the Japan’s government will rush for the new central bank chief selection for further steps in achieving the inflation target. This has further paved way for bold monetary easing which will push yen still lower to 95.00 levels. The near term support is seen at 88.00 and resistance is at 94.90.

Gold: Gold is trading firm at $1673 per ounce. The gold is seen trading range bound, as investors are seen investing in riskier assets with the improvement in the sentiment. The gold prices are seen trading flat amid mixed trading in dollar commodities. The near term support is at $ 1650 levels whereas resistance is seen at $ 1690 levels.

Crude Oil: The crude oil is currently trading at 96.69 levels. The crude oil prices are trading slightly higher amid upbeat economic data from the US and Euro zone. The service PMI from both these countries boosted the positive sentiments. In the meanwhile, a recent report showed that Saudi Arabia may lower its official selling prices for all crude grades for its Asian buyers in March. The near term support is at 95.50 and resistance is at 98.50 levels.

DI: The dollar index is trading at 79.51 levels. The US dollar index is flat against the majors as the global currencies are trading mixed against it. The Euro and CAD are trading higher against the USD whereas the AUD, GBP and JPY are trading lower against the USD. This is not giving any clues to the US dollar. Also, the economic reports released yesterday failed to provide direction to the currency. The service PMI came out in lines with the expectations and economic optimism ticked up. The Support is near 78.99 and resistance is at 80.67 levels.

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