Rupee advance after RBI cut its key lending rate – Sharekhan

Source: Sharekhan

USD-INR:

The Indian rupee appreciated by 0.12 percent in yesterday’s trading session on likely FII inflows into domestic market after RBI cuts its key lending rate by 50bps and lowered its inflation outlook. RBI cuts its benchmark policy rate by 50 bps to 6.75% from 7.25%. RBI governor expects inflation to reach 5.8 % in January 2016 compared to earlier forecast of 6%. However, sharp gain was prevented on the back of strong dollar and hawkish statements from Fed officials. Fed officials expect central bank to rate hike till the end of this year. Month end dollar demand from importers also proved unfavorable for Indian Rupee. In intraday Indian Rupee touched a high of 65.92 and closed at 65.96 against Dollar.

Outlook:

Indian Rupee is expected to trade with positive bias as RBI slashed its key lending rate by 50bps point and even lowered its inflation outlook. RBI increased the foreign investment limits in central government securities and allowed overseas portfolio investors to buy state government debt. Rise in risk appetite in the global markets may support Indian Rupee. Rupee may track strength in other Asian currencies. However, sharp gains may be prevented as the strong economic data from the U.S may increase the demand for dollar. Federal Reserve officials indicated that they expect Fed to hike interest rates later this year. Further, month end dollar demand from Importers may add downside pressure. Investors will remain cautious ahead of economic data from China. USDINR Oct expected to trade in a range between 65.95 on lower side to 66.40 on higher side with sideways down trend.

 

EUR-INR:

Euro appreciated by 0.08 percent in yesterday’s trading session on the back of weak dollar. However, sharp gain was capped on divergence in monetary policy and as market remained cautious ahead of Inflation data from Euro Zone. ECB has indicated that central bank could expand its quantitative easing program, US Federal Reserve refrain from rate hike in September but is expected to increase rates in December. In intraday Euro touched a high of 1.1281 and closed at 1.1250 against Dollar.

Outlook:

Euro currency expected to remain under pressure. Strong dollar after hawkish statements from US Federal Reserve official and strong economic data from U.S, expectation of downbeat economic data from Euro Zone and Diver gence in monetary policy will add downside pressure. A german retail sale is forecasted to increase by 0.2 percent in August from 1.4 percent in July. Europe CPI inflation is likely to ease to 0.0 percent in September from 0.1 percent in August. ECB indicated that central bank could expand its quantitative easing program whereas; U.S Federal Reserve is expected to hike rates till end of 2015. Investors worry that Strong euro may hurt the euro zone export industry. Market participants will remain cautious ahead of speeches from U.S Federal Reserve officials. It would be focused more as to get further indications on monetary policy. Whereas, Euro as funding currency because of their nations’ low-interest rates may get strengthen as money flows back to where it was funded from during risk times. EURINR Oct expected to trade in a range between 74.40 on lower side and 75.30 on higher side with sideways up trend.

 

GBP-INR:

Pound depreciated by 0.11 percent in yesterday’s trading session on the back of mixed economic data from UK and hawkish statements from Fed officials over U.S rate hike. UK Net lending to individuals increased 4.3B in August from 4.0B in July. M4 Money supply fell to -0.4 percent in august from 1.0 percent in July. Further, Sterling weakened on divergence in monetary policy. US Federal Reserve is expected to hike rate later this year. Investors feared that falling crude oil prices may put deflationary pressures on countries struggling with lower inflation calling for further easing. In intraday Pound touched a low of 1.5126 and closed at 1.5150 against Dollar.

Outlook:

Pound likely to trade with negative bias on the back of strong dollar. Domestic currency in circulation and deposited in banks fell more than expected. Further, activity in manufacturing, construction and service sectors slowdown which added to the fears that country’s economy is losing momentum. Market participants will remain cautious ahead of speeches from U.S Federal Reserve officials. It would be focused more as to get further indications on monetary policy. However, sharp fall in sterling may be cushioned on expectation of upbeat economic data from the country. Current Account deficit is forecasted to narrow to -22.2B in Q2 2015 from -26.5B in Q1 2015. GBPINR Oct expected to trade in a range between 100 on lower side and 101.1 on higher side with downward trend.

 

JPY-INR:

Japanese Yen appreciated by 0.07 percent in yesterday’s trading session on the back of weakness in dollar. Further, rise in risk aversion in the global markets led to the demand for safe haven. Weak economic data from China led to the selloff in Asian markets. Chinese Industrial companies’ profits fell at their fastest rate in four years. However, further gain was prevented on the back of divergence in monetary policy. In intraday Yen touched a high of 119.21 and closed at 119.7910 against Dollar.

Outlook:

Yen is expected to trade with positive bias as demand for safe haven may increase on worries over slower global economic growth. Market fears that weak economic data from second largest economy will weigh on global economic growth. Investors will remain cautious ahead of economic data from China. However, sharp gains may be prevented on soft economic data from Japan and as market fears that sharp appreciation in yen may hurt its export industry which may push Bank of Japan to add more monetary stimulus aids. JPYINR Oct expected to trade in a range between 55.10 on lower side and 55.8 on higher side with upward trend.

 

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