Daily Market Commentary: Monday, September 3, 2012

Domestic and International Highlights:

The Indian Rupee opened at 55.43 levels after closing firm at 55.52 levels on Friday. The intraday range for the rupee is expected between 55.35-55.65 levels.

The Asian peers are trading lower as economic reports from New Zealand to South Korea, Japan and China studded to the concern that the world economy is slowing. In China, the Purchasing Managers Index fell to 49.2 in August from 50.1 in July. It's the first time in nine months that the measure has fallen below the 50 level that signals contraction.

The U.S. markets are closed for a holiday today. The rupee was seen benefitted after global risk assets rallied. The Euro hit an eight-week high and hopes of easing from the U.S. central bank.

The investment climate in the country has suffered a serious setback because of the concerns over the impact of GAAR. The talks are on to defer it until 2016 a move likely to cheer investors. The general anti-avoidance rules (GAAR) first proposed in the budget in March, targeting firms and investors routing money through tax havens.

The Net foreign institutional investment in Indian stocks and bonds has bought around $16.7 billion in the current year.

The Indian economic growth slowed down to 5.5% its slowest in three years for the quarter that ended in June but the figures was slightly better than expected. The slight better figures may provide some support to the Central bank to hold the interest rate in the up-coming monetary policy review on 17th September.

The US 10 year Treasury bond yield is trading lower at 1.54%. The Indian bond yields spiked on Friday ending up for a third consecutive sessions as hopes the central bank would cut interest rates in September were dashed by better-than-expected April-June quarter growth data. The benchmark 10-year bond yield rose 5 bps to 8.24%, ending up 3 bps for the week. The government auctioned Rs 15,000 crores of bonds last week. The government is scheduled to auction Rs 16,000 crores of bonds this week.

Outlook: The Indian Rupee is in a range of 55 - 56 levels with a weaker bias. Exporters still maintain covers near 55.80-56.00 levels as suggested and importers near 55.20-55.40 levels. The pair still stays bullish targeting 56.00 levels. Breaking of 56.20 in USD/INR will be quite bullish for the pair again. (It is to be noted that rupee did not appreciate in the same manner as Dollar weakened against the Euro and pound internationally signaling extra weakness in rupee. )

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