Commodity Trade Mantra

Loss in Rupee is Gain in Gold – Nifty to Rise

Loss in Rupee

Loss in Rupee is Gain in Gold

The Indian Rupee extended its fall to trade at a low 55.89 versus its previous close of 55.5350, a level last seen on September 6, on strong US Dollar demand from oil refiners & closed at 55.73. Oil importers are the biggest buyers of dollars in the domestic currency market with their demand peaking at the end of each month when they are required to make payments to meet import commitments. Traders say lack of dollar inflows and strong importer demand leading to exaggerated moves in the pair. The US Dollar / INR pair is gradually expected to inch up towards the next key resistance of 56.17. Traders said the absence of any large dollar supply in the market led to exaggerated moves in the dollar/rupee. Traders will now on also remain watchful of any central bank intervention. Moves in shares are closely watched for gauging the foreign fund flow direction. Foreign funds have so far in 2012 purchased shares worth more than $19 billion. In the currency futures market, the most-traded near-month US Dollar/Rupee contracts on the MCX-SX and the NSE closed around 56.69.

MCX Gold prices for Dec contracts have gained sharply as an after effect of the slide in INR against the US Dollar. The dollar denominated metal will remain stronger in the eventuality of a weakness in the Indian Rupee. Comex Gold prices have traded up 5% to $1755 from the recent decline close to $1668. But Gold traded in India on the MCX – Multi Commodity Exchange has shot up from the lows of Rs. 29,700 (When Comex Gold slumped to $1668) to Rs. 32,464 today, a massive jump of around 10% in the same period due to the INR weakness. Any weakness in the Dollar will lead to sharper declines in Gold Prices in Indian Markets as the Rupee will tend to appreciate against the dollar at a faster pace. I advise substantial profits booking in MCX Gold at these levels. A cautious approach to day trading in Gold would be advisable till the US$ remains below 56.80 INR.

Rupee Tech Specs:

The Rupee will now face a resistance close to 56.17 & has support levels far below around 54.55. If the INR decidedly achieves a breakthrough above 56.17, then could go for its next target of 56.80 which can prove to be a very strong resistance. There can again be declines from this level towards 53.65. Traders should remain cautious & sell only on a sustained move downside from 56.80 levels as a strong bullish burst for the dollar above this technically strong resistance could lead the Rupee to lower levels below 58.51 also, which at this time may look too far fetched, keeping the looming US fiscal cliff in mind. I would take a chance on selling on declines from a rise close towards 56.80.

Nifty Closes Higher – Poised to Rise:

The BSE Sensex and Nifty ended higher today, led by gains in export-driven technology shares such as Infosys due to INR weakness against the US Dollar. The benchmark BSE Sensex ended up 0.16%, or 30.44 points, to end at 18,537.01. The 50-share Nifty also rose 0.17%, or 9.30 points, to 5635.90.  The market overall remained cautious, focusing on the outcome of Greek aid negotiations as Eurozone finance ministers and the International Monetary Fund will meet later today to try to unfreeze the second bailout package for Greece. The BSE Sensex rallied more than 6% after the reforms were announced in mid-September. But concerns over implementation, the fiscal deficit and falling foreign fund inflows have since pushed it down 3.3%. “We believe that this is the beginning of the realization that a sustainable turnaround in India’s growth prospects would require considerable effort, well beyond the burst of measures seen in September,” Deutsche Bank said last week in an analyst note headlined “Reality Check”. Shares in Mahindra & Mahindra fell 3.3% after reports that the automaker entered into a takeover deal with an Italian private equity fund for 50% of British luxury car maker Aston Martin. The Nifty is gaining ground around its support of 5617 & seems poised for a rise to its first resistance towards 5680- 98, which if overcome with sustained strength, will lead to further bullishness in order to achieve 5815 its next resistance. If the Nifty closes below 5599 level, further weakness would set in & this could lead to a decline to a strong support range at 5509 – 5482.

Policy Crossroads:

Equity Markets are hoping the government will be able to manage some reforms as there no choice left given the current account deficit, given both the houses of the parliament were adjourned on the third day of winter session. The adjournment of parliament for a third consecutive day was another dampener for the local currency as hopes that the government would push through key reforms in this session received yet another jolt. The government raised less than a quarter of its 400 billion rupee target in a 2G spectrum auction in mid-November. A second auction is planned before March, but a senior government official told Reuters there would likely be at least a 200 billion rupee shortfall. The government succeeded in raising 8.1 billion rupees by selling shares of state-run Hindustan Copper Ltd on Friday, although the deal was supported by buying from state institutions. To put the deal in context: New Delhi aims to raise 300 billion rupees by selling shares in state companies this fiscal year, which ends in March. Excluding the latest sale, it has managed just 1.25 billion rupees so far. Manufacturing is contracting and exports are falling. India’s October trade deficit of nearly $21 billion was its worst on record. Finance Minister P. Chidambaram’s battle to tame the deficit takes place against the backdrop of a continued economic slowdown, and a fractious parliament where the government has lost its majority after its biggest coalition ally withdrew support to oppose its reforms. And a second round of reforms aimed at liberalizing the pension and insurance sectors has fallen victim to gridlock in parliament. It is not clear if the measures, long sought by investors, will be passed in the current winter session. Four weeks ago Chidambaram set himself an ambitious target: to hold the government’s fiscal deficit for 2012/2013 to 5.3% of (GDP) Gross Domestic Product, even as skeptical private economists forecast a deficit closer to 6%.

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