Commodity Trade Mantra

Some more INR depreciation can be expected. U.S.$ / INR may touch 53.20

Currency Trading

Some more INR depreciation can be expected.

The outlook is yet negative for the rupee which had touched a record low of 54.30 in mid-December. India’s trade deficit was at $184.9 billion in the last fiscal year primarily due to a higher crude oil import bill. Increase in dollar demand from gold importers stocking up supplies of the yellow metal before Akshaya Tritiya festival on April 24 was seen hurting rupee. The Hindu festival is the second biggest gold-buying celebration after Dhanteras.

INR fell for a third consecutive week as investors trimmed holdings on the country’s weak economic outlook and fears more pain was in store for the currency given limited fiscal and monetary space for supporting growth. The RBI, which cut its policy rate by a hefty 50 basis points on Tuesday, said scope for further reductions were limited given inflation risks and crippling fiscal deficit.

The rupee ended 1.45% weaker from last week’s closing of 51.3050. The decline sparked talk of intervention from the RBI, but no price action suggesting such a move was seen this week. The RBI releases data on intervention with a lag of nearly two months and the latest one on Monday showed that the bank had bought $1.1 billion and sold $1.4 billion in the spot market in February.

The euro was on track for its best weekly performance since February on Friday after better-than-expected German business sentiment data but last week’s gains may fade this week as Spain’s finances and the French presidential elections become the focus. The euro also got a boost after a Group of 20 official said the G20 would pledge to increase the International Monetary Fund’s resources by more than $400 billion to fight the European debt crisis.

IMF Managing Director Christine Lagarde’s push for a doubling in lending power paid off despite complaints from emerging markets wanting more say in how the fund is run and calls from some richer nations for aid to be more tightly controlled. That left finance chiefs from the Group of 20 stressing that Europe must now justify the show of solidarity by doing even more to restore fiscal health, help banks and spur economic growth. Failure to do so could make it harder for countries such as Spain to secure aid if they falter and imperil a global recovery the G-20 labeled modest and subject to downside risks.

With 80% of the IMF’s credits set to be tied up in Europe by 2014 and its executive board heavy with voices from that continent, Canadian Finance Minister Jim Flaherty proposed non-Europeans wield a veto over future aid to the region. He also attacked the IMF for acting alongside European authorities in orchestrating loans to the likes of Greece. Lagarde stressed the new money won’t be earmarked for Europe, noting “the fund is here for all the membership” and future loans will come with tough conditions.

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