Expect rupee to exhibit weakness against dollar: Karvy

Karvy Stock Broking has come out with its report on currency. According to the research firm, rupee is taking cues from the weak global factors along with some dollar demand from the oil importers, it is expected to exhibit weakness against dollar.

• Indian rupee opened on a slightly positive tone taking cue from a firmer Asian equity and Euro but continued to be range bound throughout the session and gave a marginally higher closing. End of the month dollar demand from oil importers capped rupee appreciation.
• US GDP growth expanded faster in the second quarter than originally reported because of higher consumer spending and slower growth in import. Growth figure was upwardly revised to 1.7% and was in line with the expectation
• US equity also rose mildly following the GDP growth figure. Market shuttled between slight gain and loss. Market participants are on an wait and watch mode
• Asian stock market mostly ended in red except Nikkie. European stock markets had a volatile trading session and ended in red, although U.S. GDP data had shortly sent stocks into positive territory.
• The Italian yield on the paper fell to 1.59%, almost by a percentage compared with the last auction in July. Meeting between Merkel and Monti offered no new initiatives as European appears stuck until German's court ruling on ESM fund
• The interbank call rates closed slightly higher at 8 per cent from the previous close of 7.95 per cent

Outlook: In yesterday’s meeting between Germany and Italy, the leaders of the two country discussed briefly on various issues including the ECB’s bond-buying plan and German court’s decision about the ESM. However Merkel sidestepped Italy's request for bond buying, saying she was confident that Italy would make its decisions on its own. This implies Germany's lack of willingness to support ECB's bond buying program and there is a clear difference between the two countries over a key element in Europe's response to the euro crisis. Market is eagerly waiting for some policy action from ECB but such disagreements between leaders can give rise to uncertainty in the markets.

Today Asian equities are all trading in red as economic concern once again intensifying. However the US Beige Book which was released yesterday suggests that the world largest economy continue to expand gradually. Thus dampening some chances for another boost of easing from the U.S. Going forward we have many economic data which will be released during the European session. Key data will be German Unemployment change which is expected to increase slightly compared to the prior number. EU is going to release its Consumer Confidence which might still point towards deteriorating confidence; Business Climate is likely to be weaker than the previous figure. Italy's 10 year bond auction is also expected to induce some volatility in the 17-nation currency. Taking cue from the weak global factors along with some dollar demand from the oil importers, we can expect rupee to exhibit weakness against dollar.

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