Daily Market Report: Tuesday- October 25, 2012

The Indian Rupee opened at 53.82 Levels after closing at 53.74 levels on Tuesday. The Intraday range for the rupee is expected between 53.55-53.90 levels.

The Reserve Bank is likely to keep the key interest rate unchanged in its October 30 monetary policy because of inflationary pressures amid industry demand for a rate cut to boost economic growth.

India is facing a challenging situation, where growth rate has slowed down significantly and inflation still remaining at higher levels. Inflation rose to 10-month high of 7.81% in September 2012.

The Asian peers are trading stronger as sales of new homes in the U.S. climbed to a two-year high, helping to support what the FED described as modest growth in the world's biggest economy. The Global sentiment is still not conducive to risk-taking. In fact we are seeing more defensive plays by the investors across the global markets.

The U.S. stocks fell and the dollar gained on Wednesday after the U.S. Federal Reserve maintained its policy of stimulating growth until the job market improves, even as it acknowledged some brightening parts of the economy. Today's U.S. economic reports would be very important and potentially market moving for the U.S. dollar. Durable goods, jobless claims and pending home sales are scheduled for release.

The Manufacturing and service activity in Germany contracted at a faster pace in the month of October according to the latest PMI report. The European Central Bank President Draghi defended OMT in his Speech yesterday; he said that it was essential and doesn't compromise the ECB's independence, create excessive risks for taxpayers or lead to inflation. Draghi said the euro-area economy will remain weak in the near term because unfortunately rate cuts weren't passed on in some countries.

The US Treasury Yields on benchmark 10-year notes which move inversely to prices rose 3 bps at 1.79%. The Indian government bonds eased further on continued selling from banks and corporate, while call rate ended stable on alternate bouts of demand supply. The 10 year yield ended 1 basic point higher at 8.14%.

Outlook: Exporters can sell above 53.60 levels only for long term partially (8-12 months). Rupee is expected to be in the range of 52.50 - 54 levels for 20-25 days. Uncovered Importers cover on dips near 53.10-53.40 for Nov (50%) and Dec (30-40% ) at least and average out on better levels. Importers are suggested to cover wherever costing is met. Break of 54.30 on the upside would be crucial and important level to watch for USD/INR which will confirm that the fall to 51.40 was merely a short term correction.

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