Daily Market Report: Tuesday- October 23, 2012

The Indian Rupee opened at 53.40 levels after closing yesterday at 53.47 levels. The Intraday range for the rupee is expected between 53.25-53.60 levels. The Rupee was seen under selling pressure on Monday on account of dollar sales by the FII's to participate in the debt limit auction. India is set to auction a total 268.59 billion rupees in unused debt limits for foreign institutional investors.

An auction of permits for foreigners to buy Indian government and corporate bonds worth about $5 billion were nearly fully sold, with the exception of infrastructure companies. The Finance Ministry is also trying to boost investment by slashing its withholding tax on rupee-denominated infrastructure bonds to 5% from 20%.

The Asian peers are trading mixed amid concern over the slowing corporate earnings growth and as Europe struggles to contain its debt crisis.

With no major U.S. economic data released the most exciting event will be the third and final U.S. Presidential Debate. The US Presidential election is due in the month of November.

The U.S. Treasury prices eased on Monday, erasing a portion of Friday's gains The Benchmark 10-year Treasury yield is trading up at 1.80% up from 1.77%. The investors will be looking ahead to the Federal Reserve's policy meeting on Tuesday and Wednesday. Investors believe the Fed is likely to hold off taking fresh steps at the meeting, opting to review the impact of the quantitative easing program, known as QE3, it launched last month.

Looking at Europe, the Spanish Prime Minister Rajoy's Popular Party hold onto their seats in hometown Galicia. This should give the Prime Minister confidence to ask for a bailout. Mr. Rajoy can proceed with plans for stabilizing the country's economy but concerns persist and November 25 elections could once again revive the threat of fracture in the region.

Outlook: Exporters can sell above 53.50 levels only for long term partially (8-12 months). The 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.)