Daily Market Report: Wednesday- October 17, 2012

The Indian Rupee opened stronger at 52.72 levels after closing yesterday at 52.87 levels. The Intraday range for the rupee is seen between 52.50 - 52.80 levels.

The Indian rupee rose as demand for global risk assets was bolstered by better-than-expected U.S. and German economic indicators, and talk Spain may soon ask for a bailout.

The Asian markets are trading higher as strong U.S. earnings reports brightened investor mood, while the euro hit a one-month high against the dollar. The euro traded sharply higher against the U.S. dollar.

The optimism in the Euro was caused by speculation that Spain is getting close to requesting a bailout and the view that Germany is softening its stance on providing additional money to Spain. However all of this is mere speculation nothing is announced by the officials as of now.

A line of credit for Spain will be discussed at this week's EU Leaders Summit. Greece's negotiations with the Troika have also hit a snag that could delay the release of bailout funds. A complete agreement needs to be reached before Greece can receive its next aid payment, something the government has said they need by the end of November to avoid running out of money.

The U.S. economic data continues to surprise to the upside. Consumer prices rose 0.6% in the month of September, bringing the annualized pace of CPI growth up to 2.0% from 1.7%. According to the Treasury International Capital flow report, foreign demand for U.S. dollars rose to $91.5 billion from $74.0 billion in the month of August. Nearly all of the purchases were for long term assets with particularly strong demand coming from banking centers such as the U.K., Switzerland and the Caribbean. The increase in demand for dollars is consistent with concerns about Euro Zone.

The US treasury yield is trading higher at 1.73%. The Indian 10-year bond yield closed down 2 bps at 8.15%. The RBI is expected to keep interest rates on hold after the inflation data on Monday was higher than expected.

Outlook: Rupee has made a temporary short term bottom below 51.50 levels. Exporters can sell above 53.00 levels; importers who couldn't cover at 52 levels can cover close to 52.60 levels. Exporters maintain selling partially only in long term. Rupee is expected to be in the range of 52 - 54 levels for next couple of months.

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

Wednesday, October 17, 2012