Daily Market Commentary: Wednesday, August 8, 2012

Domestic and International Highlights:

The Indian rupee opened at 55.10 levels against the dollar after closing yesterday at 55.06 levels. The Rupee rose to a three-week high on Tuesday on the back of favorable global risk environment and large dollar sales by domestic companies. The intraday range for the rupee is expected between 54.80-55.20.levels.

The Asian peers are trading positive along with the global markets. The risk appetite recovered on hopes that global policymakers will act to help resolve the euro zone's three-year debt crisis. The demand is seen weakening for safe-haven assets such as U.S. Treasuries and German government bonds, driving benchmark US Treasury yields up to 1.61%.

The monsoon session of Indian Parliament starts today. The investors will be waiting for the announcement of the reforms promised by the government to stabiles the slowing economy.

The Ratings agency Standard & Poor's on Tuesday revised Greece's outlook to negative as the measures are not enough to save the Greece. The European Central Bank will soon start buying bonds to help contain surging borrowing costs for Spain sentiment was boosted by Italy's Prime Minister Mario Monti winning a confidence vote on Tuesday on a bill to cut spending, which comes in addition to his austerity package passed in December.

The Germany continues to oppose any large-scale bond-buying program while Greece is waiting global creditors to approve bailout funds. Greece has pledged a series of fiscal and reform measures worth 11.5 billion Euros to convince international lenders to provide them 130 billion euro lifeline and avoid bankruptcy

A top Federal Reserve official said on Tuesday the Federal Reserve should launch another bond-buying programme to get the economy back on its feet, signaling support from some U.S. policymakers for aggressive steps to boost the flagging recovery. But Mr. Bernanke has not offered any clues as to whether he is ready to recommend another round of easing and it seems be unlikely before the Presidential elections.

The Indian bond yield rallied to its highest this month as hopes for a rate cut built up dramatically after the finance minister said high borrowing costs were burdening consumers and added the government would pursue fiscal consolidation. The benchmark 10-year bond yield closed down 7 bps at 8.15% on Tuesday, bringing its fall for the week so far to 11 bps.

Outlook: Importers cover for August near 55 levels. Exporters wait for covers close to 55.80 (Plan A) again. Exporters keep a stop loss of 54.80 (Plan B) in case rupee keeps appreciating to cover partially. Trend stays USD/INR bullish.

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