Currency market update

The USDINR ended firm on Monday highest level since end September, breaching the Rs. 45 per dollar mark. The spot pair opened at 44.85, and edged higher from thereon to end the first trading day of the week at 45.24, up almost 43 paisa or 0.95%. In the futures market, the Nov contract hit an intraday high at 45.36 and registered a low at around 45.05 during the day and ended at 45.34, up 39 paisa or 0.88% as compared to previous close at 44.94. However, domestic stocks reversed early losses and gained in late trading hour on improved trade data and easing of inflation in October 2010

The WPI based YoY inflation stood at 8.58 %( provisional) in October 2010 against 8.62 %( provisional) in the previous month and 1.48 %during the corresponding month of the previous year.

Reserve Bank of India Deputy Governor said inflation remains high in the nation despite a good monsoon, driven by increases in food prices. The central bank will take a “wait-and-watch” approach to managing interest rates in the immediate future, he said. A liquidity deficit in the financial system, while desirable, has gone too far in recent weeks and may cause excessive volatility in short-term rates, he added.

The market is now optimistic of pause in rate hike cycle of RBI on softening inflation along with weak IIP numbers. India’s IIP growth slipped to a 16-month low of 4.4% in September, compared to 8.2% in the corresponding month a year ago.

There may be some moderating in the capital flows on expected pause in the tightening cycle and the Indian rupee should see some decline against the US dollar.

USDINR Nov: The market is expected to stay firm above the 45.15 levels. The immediate resistance is seen at 45.45-45.50 and above that 45.70. We recommend buying on USDINR for the day. One can look for buying in the range of 45.15-45.20 levels today.

EURINR Nov: The market is expected to stay range bound for the day. Gains in the USDINR may limit decline. The resistance is seen at 61.85-61.90 levels and support is seen at 61.50 and then 61.35 levels. We recommend selling on a pullback towards 61.90 levels.