Daily Market Commentary: Thursday, August 9, 2012

Domestic and International Highlights:

The Indian rupee opened at 55.18 levels after closing weaker yesterday at 55.41 levels against the dollar. The intraday range for the rupee is expected between the ranges of 54.90-55.40 levels.

Asian peers rose after reports showed China’s consumer prices climbed at a slower pace for a fourth month and Australian employment exceeded estimates. The China’s consumer prices rose 1.8% in July from a year earlier while the producer-price index dropped 2.9%.

The rupee is continuously tracking the Euro; the market is also looking for some action from the government as well as the June factory data due today. The manufacturing sector is expected to register lower growth during July-September quarter compared to previous quarters, mainly due to the weak rupee and slowing demand.

The government is expected to impose restrictions on imports of used capital goods to protect domestic manufacturers and increase their competitiveness as per the officials of the government. According to officials, the government is considering to stop giving benefits under the Export Promotion of Capital Goods (EPCG) scheme for importing used goods.

The scheme includes allowing a domestic manufacturer to import capital goods at only 3% customs duty irrespective of the applicable duty rate. Sectors like textiles, machinery, and construction import used capital machinery in large numbers.

The global markets are seen trading green from the last few days on account of stability in euro after the officials raise the hope to save the zone. On account of positive demand of the riskier assets, the US Treasury yield is seen drifting up to 1.68%. It is currently trading at 1.64%.

The Indian bond yields fell for a third straight session on Wednesday as investors turned hopeful of the monsoon session of Parliament. The benchmark 10-year bond yield closed at 8.14 % down 1 bps from its previous close.

Outlook: Importers cover for August near 55 levels. Exporters wait for covers close to 55.80 (Plan A) again. Exporters keep a stop loss of 54.80 (Plan B) in case rupee keeps appreciating to cover partially. Trend stays USD/INR bullish.

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