DAILY MARKET COMMENTARY: Monday - February 18, 2013

The Indian Rupee opened at 54.43 levels after closing yesterday at 53.84 levels. The Intraday range for the rupee is seen between 54.20 – 54.55 levels.

The Rupee weakened against the US Dollar on the back of the Euro coming off and on the back of higher trade deficit. Rupee encountered its biggest weekly loss in last three months, it depreciated by 1.3% in last 5 days.

The Euro fell by 0.3% against the USD post the release of the negative 0.6% fourth quarter GDP growth number for the Euro zone. The US saw better data with improved consumer sentiments and lower trade deficit for January 2013. Positive US economic data helped the dollar to rally against the major peers.

The Reserve Bank of India chief Duvvuri Subbarao struck a hawkish note on Saturday and said there are upside risks to inflation from food and commodity prices, while room for monetary easing is limited. With the up-coming budget the RBI’s eye will be on the Current Account Deficit figures which are due with Budget i.e. On 28th Feb 2013.

The current account deficit widened to a record high of 5.4% of GDP in the September quarter, and Subbarao recently said it is likely to be at an all-time high in the fiscal year that ends in March.

Looking at the current account balance figures of 2012 Indian stood 3rd in the list of countries holding high CAD. Out of 43 nations, South Africa ranked 1st with a deficit of 6.3% of the GDP, Turkey 2nd with 6.2% of the GDP and India 3rd with 4.2%. (Source The Economist)

The Asian markets are trading mixed after the Group of 20 nations refrained from censuring the nation’s policies that have weakened the yen. The minutes from the most recent Federal Reserve meeting is scheduled for release next week and we could see talks of phasing out asset purchases to resurface, which will further impact the global markets.

The US 10 year Treasury yield is trading flat at 2%. The Indian Federal 10 year bond yield closed 1 bps higher at 7.83% than the previous close of 7.82%.

The RBI is expected to hold more OMOs in the next few weeks to shore up system liquidity. RBI has bought around Rs 150,000 crores of bonds in fiscal 2012-13 and more bond purchases will keep the market light on bonds as it goes into fiscal 2013-14. The Liquidity as measured by bids for repo in the LAF (Liquidity Adjustment Facility) auction of the RBI tightened last week. Bids for repo averaged Rs 120,000 crores on a daily average basis last week against an average of Rs 82,600 crores seen in the week previous to last.

Outlook: As suggested earlier, exporters can start initiating long term covers at 54.20 or plus levels in a phased manner. In case already booked substantially then keep stop loss of 54.10 for further bookings .. All bookings should be done long term in nature.  Importers should make the most of the correction in the market and Importers should cover on dips as and when comfortable. OVERALL: USD/INR pair still maintains bullish.

EUR/USD:  The Euro is seen trading lower at 1.3328 levels against the US dollar. The Euro started losing momentum against the US dollar after the ECB President said that the exchange rate stability is important for the growth. it signals that they are carefully watching the currency movements. Going ahead, he will again be giving a speech before the European Parliament. This week, the European Commission will be presenting the economic projections, and if they revise the growth forecast on the downside, then it will lead the Euro to fall below $1.3300 levels.  The near term support is at 1.3250 and resistance is at 1.3520.

GBP/USD:  The British Pound is trading eight months low at 1.5487 against the US Dollar. On the data front, the retail sales fell 0.6 in January, extending the contraction by four months. The Retail sales have fallen five out of six months which is why the Bank of England Governor King maintained a negative view on the economy. Unless there is a significant recovery in February and March, retail sales won’t provide much support to the first quarter GDP growth. 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 is trading six months low at 1.0276 levels. One of the major reasons for this fall was sharp decline in the gold and silver prices over the weekend. On the data front, we have the monetary policy meeting minutes due for the day. 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 94.11 levels.   In the two day G-20 meet, it was mentioned that the Japan cannot be singled out for using monetary policy to weaken their currency. It is not the only country who is manipulating in the currency market. This month, there will be a nomination for the BOJ governor and Mr. Muto is the leading contender for the same. He might ease the policy further if elected as the governor.  The near term support is seen at 90.00 and resistance is at 94.90.

Gold:   The Gold is at five months low currently trading at 1615 levels. The gold is seen trading below its six month low. China's absence from the physical market for the Lunar New Year public holiday pressured gold. The demand for Gold in India fell 12% from 2011, to 864 tons. Besides this, there was a technical selling in gold amid G-2o meeting on the weekend.  The near term support is seen at $1597 levels while resistance is seen at $1630 levels.

Crude oil:  The crude oil is seen trading at 95.62 levels.  The crude oil prices sank lower after the data showed a slump in the US industrial production last month. On Indian front, State oil firms have raised diesel prices by 51 paise per litre and petrol by Rs 1.8 per litre from Saturday.  IOC said in a statement that petrol prices were raised because of rising international crude oil rates.  The near term support is at 94.90 and resistance is at 98.20 levels.

Dollar Index: The US Dollar Index is trading at 80.66 levels. The US dollar index is trading above one and a half week high supported by the strong economic reports. The manufacturing index jumped to 10 from -7.8 in the last month.  The University of Michigan Consumer Confidence index rose to 76.3 from 73.8. The data is encouraging and consistent with Bernanke's comment that a stronger U.S. economy is helping the global economy.  The minutes from the most recent Federal Reserve meeting is scheduled for release next week, which will be closely tracked by the markets.  The Support is seen near 78.90 and resistance is at 81.20 levels.

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