Daily Market Commentary: Wednesday, September 12, 2012

Domestic and International Highlights:

 

The Indian Rupee opened stronger at 55.14 levels after closing yesterday at 55.34 levels against the dollar. The intra day range for the rupee is expected between 55.00-55.50 levels.

 

The Asian peers are trading stronger on speculation that the China and the U.S. will take more measures to spur growth in the world's two biggest economies. The investors remained cautiously optimistic that the German court would approve the legality of the Euro zone's bailout fund later in the day and the U.S. Federal Reserve may announce further stimulus.

 

The Moody's rating agency said the United States; the world's biggest economy may lose its top AAA rating if next year's budget talks do not produce policies that reduce the country's debt. While Troika has revised the fiscal target for Portugal as the economy faces recession.

 

At home, industrial output data (IIP) is due for the day, inflation numbers on Friday, which will be followed by Reserve Bank of India's monetary policy review on Sept. 17.

 

The industrial output is likely to remain subdued in July, after falling steeply the previous month as uncertainty in the global economy hurt exports, and the key infrastructure sector grew at its slowest pace in last six months. Contraction in manufacturing spread further around the world in July and August as the euro zone's troubles damaging the global economy.

 

The key infrastructure industries, which account for almost 40% of factory output, expanded just 1.8% in July the slowest pace since January 2012. The high interest rates, lack of government reforms, rising raw material prices and weak investment cycle have also hit domestic demand. The government hasn't done much to work on the reforms eroding the foreign investors' confidence in the Indian economy.

 

The US 10 year treasury yield is trading higher at 1.70% as market expects further stimulus to be added. The Indian bond yields ended flat on Tuesday with investors concern about whether the government can push through a hike in fuel prices. The benchmark 10-year bond yield ended flat at 8.18% after falling 3 bps. Investors are also cautious ahead of July industrial output data and August inflation figures, both of which will set expectations ahead of the Reserve Bank of India's policy review.

 

Outlook: The Indian Rupee is still stuck in a range of 55 - 56 levels with a weaker bias. Rupee is not seen appreciating much in spite of the Dollar Index falling below 80 levels. We expect Rupee to get slightly bullish in the short term but the medium term outlook still remains bearish. Overall range bound.

 

(Source: Corporate Communications Team,

India Forex Advisors Pvt. Ltd. )