DAILY MARKET COMMENTARY: Thursday - February 14, 2013

The Indian Rupee opened at 53.82 levels after closing yesterday at 53.82 levels. The Intraday range for the rupee is seen between 53.70 – 54.00 levels.

The Indian rupee stabilized on Wednesday, after snapping a five-day losing streak after poor trade deficit figures, helped by gains in domestic share markets and the gains in Euro. The trade deficit for the month of January was recorded at $20bn, the second worst figures. The worst figure was $20.9 billion posted in October.

The Current account data for the October-December quarter will be released at the end of next month, but the deficit had touched a record high in September at 5.4% of GDP due to slowing exports and heavy oil and gold imports.

During the start of the week, RBI Governor Duvvuri Subbarao reiterated concern over financing the current account deficit with volatile capital flows. Portfolio inflows into India have been robust, with $8.34 billion so far this year after inflows of $31.41 billion in the whole of 2012. He projected a record high current account deficit for the 2012/13 fiscal year, ending in March.

The impact of hiking the gold import duty in terms of curbing current account deficit will be something the RBI will look upon in the coming months. The results of this measure will represent effectiveness of government in reducing the deficit gap. This widening gap will continue to add pressure on the fundamentals of the Indian economy.

The upcoming foreign investor debt limit auction of over $11 billion on Feb. 20 is also likely to boost the rupee with most of these funds likely to flow in before the sale date. On account of huge flows pumping into the local markets we can see some further dip but as said earlier as well, these flows will have temporary impact the fundamentals has to improve on consistent base to provide long term support to the local currency.

Events to watch, India will release monthly WPI inflation data for January 2013. By the end of this week Petrol price may be hiked by about Re 1 a litre and diesel by 50 paise a litre as oil firms begin to exercise the recently accorded freedom to adjust rates in step withcost.

The Asian markets are trading slight positive ahead of the G20 meeting of finance and central bank officials over the weekend for clues to their views about global growth and the role currencies play in the economies of individual member countries.

The sentiment in Europe improved after an Italian bond auction drew strong demand on Wednesday despite uncertainty over next week's elections, and euro zone factory output data confirmed a recovery, albeit slow. The Euro Zone’s Growth figures are due for the day which will further decide the track of the 27 nation’s currency.

The US 10 year Treasury yield is trading higher at 2.07%. The Indian Federal 10 year bond yield closed 3 bps lower at 7.84% than the previous close of 7.87%.

Outlook: Target 54.20 levels. OVERALL: USD/INR pair still maintains bullish. The range for the rupee is seen between 53.70 – 54.00 levels.

EUR/USD:  The Euro is seen trading on a firm note at 1.3452 levels against the US dollar. The Euro zone is still seen under pressure amid Spain’s corruption scandal and Portugal’s flaring unemployment rate. Today overall Euro zone GDP figures will be released which will be very significant for the Euro. The near term support is at 1.3308 and resistance is at 1.3680.

GBP/USD:  The British Pound is trading weaker at 1.5538 against the US Dollar. The Pound fell to a six month low after dovish comments from Bank of England’s Governor Mervyn King who spoke after the inflation report was released. While the central bank raised its CPI forecast, King showed a harsh picture of the U.K. Economy noting that the Consumer Price Index will remain above the 2% target and may even tick up to 3%.  The pair is expected to find a support near 1.5456 levels and the resistance is near 1.5845 levels.

AUD/USD: The Australian Dollar currently is trading at 1.0356 levels. The Commodity currency recovered sharply on account of better than expected figures from the Westpac Consumer Confidence which came in at 7.7% versus the 0.6% of the previous month. This is the largest increase since September 2011. While there are certain areas of concern for the Australian Economy, the rise in the house prices and rally in stock Market has bolstered consumer sentiment and hopefully this will support the economy. The near term support is seen at 1.0237 levels while immediate resistance is at 1.0423 levels. 

USD/JPY:  The yen is seen trading on a firm note at 93.48 levels. The GDP figures of the fourth quarter surprisingly shrank on account of the falling exports and business investments.  The yen is seen moving on a cautious note ahead of the G20 meeting which will give more clues about the movement of the yen. Today’s BOJ monetary policy meeting will be keenly watched by the markets. The near term support is seen at 90.00 and resistance is at 94.90.

Gold:  Gold has seen trading firm at $1644. 40 levels per ounce. The gold demand saw a slump after the tepid growth in US retail sales in January. The investors are seen cautious ahead of the G20 meeting which is expected to set the tone of the currency market. The near term support is at $ 1627 levels whereas resistance is seen at $ 1667 levels.

Crude oil:  The crude oil is seen trading at 97.20 levels. The crude oil prices are trading on a lower note as the recent US inventory data showed that the crude stocks rose by 560,000 barrels last week.  On India’s front, trade figures for the month of January were released yesterday. Oil imports which is the major import component stood at $15.9 billion, up 6.91 percent (in January) compared with $14.9 billion in the corresponding period last year.  The near term support is at 93.60 and resistance is at 98.20 levels.

Dollar Index: The US Dollar Index is trading at 80.08 levels. The US dollar was seen trading mixed as it was higher against the Euro and GBP but lower against the Aussie and NZD. The focus on G-20 meeting is making the markets ignore the economic reports coming out from the US. On the data front, January Retail Sales in the US rose 0.1% on a monthly basis.  The rise was in lines with the expectations. According to Mr. Bullard (FOMC voter and St. Louis Fed President), the economic growth of the economy will accelerate this year and the inflation rate is low which will give the Fed more room to act.  The Support is seen near 78.90 and resistance is at 80.87 levels.

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