Currency World 24-07-2014 …

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Indian rupee closed slightly higher on the back of dollar sales by custodian banks acting on behalf of foreign funds, but broader gains were capped by greenback demand from importers.

The rupee remains stuck in a broad range, with support from overseas investors who were net buyers of Indian equities and debt market. Appetite for debt remains robust with total inflows so far this year to $12.59bn.

But oil-related dollar demand is capping broader gains in the rupee, while a stand-off between Russia and the West also continues to spark uncertainty in global markets. The partially convertible rupee closed at 60.24/25 per dollar compared with 60.3/31 on Monday. The unit moved in a tight range of 60.18 to 60.2850 during the session.

Asian stocks touched a 3-year peak on Tuesday, despite lingering concerns about crises in Ukraine and Gaza, while the yen eased against the dollar and the euro. In the offshore non-deliverable forwards, the one-month contract was at 60.50 while the three-month was at 61.01.

The benchmark 10-year bond yield closed down 1bp at 8.69%, on expectation the new 10-year debt at this week’s auction will be sold at yields substantially below the current benchmark, leading to a re-pricing of existing debt. The benchmark five-year swap rate closed 1bp higher at 7.89%, while the one-year rate closed steady at 8.4%.

In call money market, cash rate closed at 9/9%, unchanged from Monday’s close. The dollar traded firmly against major currencies on Tuesday, supported by a solid U.S. inflation and existing home sales numbers, suggesting that the U.S. economy continues to improve and is in need of less support from the Federal Reserve.

The euro fell to a 8-month low against the dollar after the release on positive inflation and housing data. The single currency has remained under pressure over ongoing market sentiments that the European Central Bank has room to loosen policy if needed.

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