Daily Market Commentary: Thursday, August 2, 2012

Domestic and International Highlights:

The Indian Rupee opened weaker at 55.75 levels after closing yesterday at 55.47 against the dollar. The Asian peers are trading mixed amid speculation the ECB will do more to contain the debt crisis after the Federal Reserve disappointed market with no new stimulus. The intra day range for the rupee is seen between 55.50-55.80 levels.

The investors are seen turning cautious as hopes of stimulus action by central banks thinned ahead of a European Central Bank's meeting later in the day and after the U.S. Federal Reserve took no action to support the economy.

The HSBC manufacturing Purchasing Managers' Index (PMI) fell to 52.9 in July from 55.0 in June its biggest one-month drop since September last year. With clear signs the global economy is slowing, export orders fell slightly for the first time in nine months.

India's fiscal deficit in April-June rose to 1.9 trillion rupees or 37.1% of the full fiscal year 2012/13. The government had budgeted a fiscal deficit of 5.14 trillion rupees or 5.1% of the gross domestic product for the current fiscal year ending in March 2013.

After Pranab Mukherjee becoming the President, P. Chidambaram is appointed as India's new finance minister on Tuesday. The new finance minister would face the challenge to revive the slowing economy, which is facing number of internal and external issues.

As per our expectation, dollar rallied against the euro on Wednesday after the Federal Reserve took no new monetary stimulus after a two-day policy meeting ended. The Markets have been hoping the ECB would resume its bond buying, called the Securities Market Program (SMP) to bring down the borrowing costs for Italy and Spain which had risen to critical levels.

The Indian bond yield eased on Wednesday, The benchmark 10-year bond yield eased 2 bps to close at 8.23% from the previous close. It had risen to as much as 8.28% on Tuesday, its highest in a month.

Outlook: USD/INR maintains bullish bias for 3-4 months targeting 56 as first target. Importers still cover on dips like yesterday and exporters wait till 56 to cover.

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