DAILY MARKET COMMENTARY: Wednesday - February 13, 2013

The Indian Rupee opened at 53.75 levels after closing yesterday at 53.84 levels. The Intraday range for the rupee is seen between 53.65 – 54.00 levels.

The Indian rupee ended steady yesterday after dropping to its lowest in three weeks. The negative data also supported the rupee to depreciate further but the later recovery in Euro and weakness in Dollar Index helped the rupee to erase some of its losses.

The India's industrial production unexpectedly shrank for a second straight month in December, weighed down by weak investment and consumer demand. The index of industrial production (IIP) fell 0.6% annually in December. The Consumer price inflation inched up to 10.79% in January from 10.56% a month ago.

The wholesale price index data for the month of January, which the Reserve Bank of India gives more weight to in setting policy, is due on Friday. As data showed a contraction in industrial output but continued high consumer inflation raised uncertainty about how aggressively the central bank would cut interest rates this year. That made it uncertain about whether the RBI would focus on growth or on inflation.

The FM is seen under political pressure to unveil a growth-oriented budget on February 28 for the next fiscal year, as the government gears up for an election due by early 2014 at the latest. He has already ordered spending cuts in welfare, defence and road projects for this financial year. At a time of low growth, lower spending risks deepens the slowdown without helping the deficit-to-GDP ratio which will be again a point of concern to attain the long term growth.

Looking at the International markets, Moody's Investor Services on Tuesday said downside risks for the global economy had receded in the past three months, though a number of dangers still remained.

Markets are likely to continue taking cues from currency markets before the meeting in Moscow of the Group of 20 finance ministers and central bankers on Friday and Saturday, with growing international tensions over exchange rates.

The Euro steadied around $1.3450, after rising on comments made Tuesday by European Central Bank President Mario Draghi, who said talk of a currency war was overdone, and that Spain was on the right track toward economic recovery. The Euro Zone GDP figure for fourth quarter is due for tomorrow, with expectation of negative growth.

The US 10 year Treasury yield is trading flat at 1.98%. The Indian Federal 10 year bond yield closed 1 bps higher at 7.87% than the previous close of 7.86%.

Outlook: As suggested earlier, exporters can start initiating long term covers at 54 or plus levels in a phased manner. 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 trading at 1.3447 levels against the US dollar. The Euro saw slight appreciation after the ECB President Draghi curtailed talks about the currency war. He believes the currency war talks are over done and the G7 members focused more on fiscal and monetary policy rather than the exchange rate movement. Draghi was seen maintaining his stance on the euro i.e. he is comfortable on the current levels and will pursue its accommodative monetary policy. The near term support is at 1.3308 and resistance is at 1.3680.

GBP/USD:   The British Pound is trading steady at 1.5668 against the US Dollar. The Pound continued its weaker trend against the Euro and it experienced a sharp intraday reversal against the US Dollar. The data released yesterday were positive and much on the expected lines. One of the major data was the consumer price index which stood at 2.7% which was expected. Today we have the inflation report by Bank of England which would drive the Pound. The pair is expected to find a support near 1.5624 levels and the resistance is near 1.5845 levels.

AUD/USD: The Australian Dollar currently is trading at 1.0334 levels. The Commodity currency recovered sharply on account of improved NAB Business Confidence and Business conditions which came in at 3 versus 2 of previous month.  Yesterday, one more report showed that Westpac consumer index rose to 7.7% versus 0.6% previously. According to NAB, a brighter outlook for China and the prospect of further interest rate cuts helped to keep sentiment steady amidst weaker domestic conditions. The near term support is seen at 1.0237 levels while immediate resistance is at 1.0423 levels. 

USD/JPY:   After breaching the 94 levels the yen is now seen trading steady at 93.30 levels. The yen movement from the past few weeks is on the helm of statement from Japanese officials, Finance minister or its Prime Minister. The G7 statements so far haven’t given any direction to the yen. They have left it on the G20 meeting in Moscow for further cues. The near term support is seen at 90.00 and resistance is at 94.90.

Gold:  Gold was seen inching slightly higher at $ 1652 levels per ounce. The gold prices are seen to be range bound as markets are shifting their focus from the safe heaven to the equity markets. The recent repost by global research showed that Russia is the world’s biggest buyer of gold. Over the last decade Russia’s Central Bank acquired 570 metric tonnes of gold. The near term support is at $ 1627 levels whereas resistance is seen at $ 1667 levels.

Crude oil:  The crude oil is seen trading at 97.60 levels. It is trading higher taking cues from the slight weakness in dollar index. Talking about the global energy demand, the OPEC has revised up its global demand forecast for this year. The forecast for world oil demand growth in 2013 has also been revised up by 80 tb/d. It was 45tb/d in 2012.  Most of this demand growth is seen coming from China, where demand is expected to increase by 0.4 mb/d.   The near term support is at 93.60 and resistance is at 98.20 levels.

Dollar Index: The US Dollar Index is trading at 80.02 levels. The US dollar is trading on a mixed note after falling below 80.00 levels yesterday as Draghi’s comments pushed Euro higher. In the meanwhile, Fed Reserve member Ms. George said the current inflation rate is manageable, indicating that she does not favour winding up the QE3. The retail sales, which are one of the most important market moving indicators, will be released today. Since last few months, it has been observed that the retail sales along with other data releases failed to have major impact on the US dollar as Fed is committed to its easy monetary policy.  The Support is seen near 78.90 and resistance is at 80.87 levels.

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