Friday, December 2, 2011

Dollar drops on central banks action

The Indian rupee advanced to 51.46 v/s the US dollar, gaining a smart 74 paise, buoyed by the rally in
local stocks due to coordinated effort from global central banks to improve us dollar supply. The
central bank of the UK, Switzerland, Japan, the US and Canada, along with the European Central
Bank, had agreed to cut US dollar liquidity swap rates by 50 basis points. The central banks also
agreed to establish temporary bilateral liquidity-swap arrangements. These measures improved
dollar liquidity in the global financial system. The USDINR for December expiry dropped 83 paisa to
close at 51.70.
Domestic equities started the month of December 2011 on a promising note on the back of strong
rally in the global markets on the previous day as key benchmark indices on Thursday touched an
intra-day high with Sensex at 16,718 points and Nifty at 5,012 points. According to the Bombay Stock
Exchange, there were net foreign fund inflows of Rs 687 crore in domestic equity markets, which
closed around two per cent above the previous day's close.
From domestic front, the market is expecting a pause in RBI policy rates as growth has started
slowing down. India’s economy expanded 6.9 percent in the quarter ended September, matching the
market estimates. The Reserve Bank of India, which cut its growth forecast on Oct. 25 to 7.6% from
8%, has been constrained in supporting the economy as it struggles with inflation that’s almost twice
the rate in China and higher than in Brazil and Russia. The RBI may go with slowing growth rather
than inflation at this point of time.
In other pairs, decline was seen as USDINR dropped heavily. The EURINR, GBPINR and JPYINR with
December expiry dropped 25, 68 and 69 paisa respectively. The manufacturing PMI released
yesterday showed, manufacturing activity has contracted in UK, Euro zone and China. While in the US
it rose. In currencies today, the EURUSD and GBPUSD has been trading stable before the release of
critical nonfarm payroll data from the US. The non-farm payrolls report is expected to show an
increase of 122,000 jobs and a steady unemployment rate of 9.0 percent. In other events of concern,
French and German leaders are meeting next Monday to outline joint proposals to put to a
December 9 EU summit, seen as yet another make-or-break meeting for the currency bloc.

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