Daily Market Commentary: Tuesday, September 20, 2012

Domestic and International Highlights:

The Indian rupee opened weaker at 54.30 levels against the dollar after closing at 54.01 on Tuesday. The intra day range for the rupee is expected between 54.10-54.60 levels.

The Asian markets fell from the highest level since May after Japanese exports dropped for a third month, Imports in Japan slid 5.4%, leaving a trade deficit of 754.1 billion yen ($9.6 billion). After FEB and ECB, BOJ will also increase the size of its asset-purchasing program by about Y10tn ($126bn) to Y80tn, by buying another Y5tn of short-term government bills and another Y5tn of longer-term government bonds. The deadline for completing those purchases will also be pushed back, from June 2013 to the end of 2013.

The investors were seen cautious of the manufacturing data from China later in the session for clues about whether Beijing would be prompted to take more stimulus action in the world's second-biggest economy.

The Manufacturing activity in China stabilized in September after hitting a nine-month low in August a survey of factory managers showed on Thursday. The HSBC Flash China manufacturing purchasing managers' index (PMI) ticked up to 47.8, from 47.6 in August. The figure continues to remain below the 50 mark that divides expansion from contraction, the overall PMI index is now at a level rarely seen since the 2008-2009 global financial crisis.

The Euro is trading steady around $1.3010, bouncing from Wednesday's low of $1.29931; while the dollar slipped back from a one-month high against the yen of 79.23 touched on Wednesday after the BOJ's move, and was last trading at 78.37.

But the investors have become cautious of the uncertainty over whether highly indebted Spain will seek a bailout to ease its fiscal strains, as well as global growth slowdown which prompted central banks into action. The Germany's ruling party proposed only limited bank supervisory power for the ECB highlights the differences among the leaders raising worries about the European policymakers' long-term debt-crisis management ability.

The Indian bond yields fell on Tuesday on hopes the government will unveil more fiscal measures. The benchmark 10-year bond yield fell 1 bps to 8.17%. Bonds are also likely to remain supported by improved liquidity after the RBI cut the cash reserve ratio, with an expected 170 billion rupees to be released in local market.

Outlook: USD/INR is unable to maintain below 54.00 levels consistently. Rupee still maintains a very strong medium term support at 53.10-53.50 levels. Importers were asked to cover partially when earlier stop loss of 54.10 got triggered. Next stop loss for importers to cover further would be 54.60 levels. Break of 55 would make mean the USD/INR correction has ended. Uncovered Exporters cover partially for short term at 54.50 levels.

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