Expect USDINR to trade with an upward bias: Nirmal Bang

The Indian rupee snapped a four-day winning streak on Wednesday on the back of dollar demand from oil firms and tracking a slump in global risk assets including the euro ahead of the European Central Bank policy meeting this week. The session was volatile, with the rupee rising as much as 54.18; it’s strongest against the dollar since May 17, on speculation that the government may remove the withholding of tax on bonds for foreign investors. However, the rupee gave up the gains as investors said any removal of such a tax remained speculative. The partially convertible rupee closed at 54.48/49 per dollar, down 0.2 percent from its close of 54.36/37 on Tuesday. India's debt limit auction yesterday met tepid investor response due to investment restrictions in the auctioned limits and because of thin participation by some investors on account of a U.S. holiday. The rupee is likely to open weak today after the government debt limit auction witnessed tepid demand which rules out expectations of very strong debt inflows in near future. Moreover, the overnight fall in the euro and demand from importers is also likely to put some pressure on the rupee. We expect USDINR to trade with an upward bias during the day.

The euro slid against the dollar to trade around $1.2525, under pressure from widespread expectations that the ECB is about to cut interest rates by at least by 25 basis points today. World shares and oil prices also fell on Wednesday as evidence grew of the headwinds facing the global economy, though hopes of policy easing by major central banks limited the falls. In the quiet market Germany still found it easy to sell 3.3 billion Euros ($4.2 billion) of 5-year government bonds, receiving bids for 2.7 times the amount on offer at an average yield of just 0.52 percent. Strong demand for safe-haven German debt at a bond auction also signalled that investors remain worried about the implementation of recently agreed measures to help ease the euro zone's debt crisis, with Spanish and Italian bond yields higher. After the auction 10-year Spanish bond rose 14 basis points to 6.4 percent, and the Italian equivalent rose 12.5 basis points to 5.77 percent. However, activity was very subdued with U.S. markets closed for the Independence Day holiday and before policy decisions from the European Central Bank and Bank of England today.

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