Indian Rupee Falls On Negative Eocnomic Data, US Dollar To Gain Today: April 16, 2012

Asian markets are trading lower today as rise in Spanish government bond yields increased worries with respect to the Europe’s sovereign debt crisis. Spain's bond yields rose last week and the cost of insuring its debt against default increased as record borrowing by its banks from the European Central Bank led to rise in concerns over the country's funds.

US Prelim UoM Consumer Sentiment declined by 0.5 points to 75.7-mark in April with respect to previous level of 76.2 in last month. Core Consumer Price Index (CPI) increased to 0.2 percent in March as against a rise of 0.1 percent in February.

CPI was at 0.3 percent in March from 0.4 percent a month ago. Prelim UoM Inflation Expectations was at 3.4 percent in current month compared to 3.9 percent in March.

On a weekly basis, the US Dollar Index (DX) traded lower by 0.3 percent on rising expectations that the Federal Reserve another round of quantitative easing after the weak jobs creation data which increased uncertainty over growth in the world’s largest economy.

However, a rise in risk aversion in the global markets due to deepening tensions over global economy cushioned a urther fall in the US Dollar Index. Dow Jones and S&P dropped around 1.6 percent and by 2 percent last week.

The Indian rupee (INR) depreciated around 0.8 percent in the last week on the back of unfavorable economic data from the country coupled with fall in the domestic equities.

Nifty and Sensex declined sharply by more than 2 percent each last week. However, further depreciation was resisted due to weakness in the US dollar.

The currency touched a low of 51.39 and closed its trading session at 51.54 last week. For the current month,inflows totaled at Rs 321.90 crores till 13th April 2012. While on a year-to-date basis, net capital inflows stood at Rs 44272.70 crores till 13th April.

Rising uncertainty over global economy will lead to strength in the US dollar index today. On account of this coupled with weak sentiments in the global markets, we expect the Indian rupee to trade with a depreciation bias.

The euro traded lower in the last week on speculations that the European Central Bank won’t restart its government bondpurchase program and also as Spanish credit-default swaps rose to a record. Re-emergence of eurozone debt worries coupled with weak sentiments in global markets also exerted downside pressure on the currency.

However, further decline was not witnessed due to weakness in the US dollar index. The euro touched a low of 1.3031 and closed its trading session at 1.3075 last week.

German Final Consumer Price Index (CPI) remained unchanged at 0.3 percent in March. Italian Industrial Production declined by 0.7 percent in February from previous decline of 2.6 percent a month ago.

We expect the euro to trade with a negative bias today on the back of renewed concerns over eurozone debt worries coupled with strength in the US dollar. Any negative news or developments from the eurozone front will also lead to further downside in the currency.

On a weekly basis, the pound depreciated by 0.2 percent taking cues from mixed economic data from the country and rise in risk aversion in the markets.

However, further downside in the currency was restricted on account of a weaker Dollar Index. The pound touched a low of 1.5807 during the week and closed at 1.5846 on Friday.

UK’s Producer Price Index (PPI) Input rose by 1.9 percent in March with respect to previous rise of 2.5 percent in February. PPI Output remained unchanged at 0.6 percent in March. UK’s Rightmove House Price Index (HPI) increased to 2.9 percent in April from previous rise of 1.6 percent in last month.

Taking cues from a stronger dollar and rising concerns over global economic growth, we expect the pound to trade with a negative bias today.

The Japanese yen appreciated by 0.9 percent last week as the Bank of Japan refrained from further moves in order to boost the economic growth. The currency touched a high of 80.57 in the last week and closed at 80.89 on Friday.

We expect the yen to trade with an appreciation bias today mainly on account of a rise in risk aversion in global markets which will boost demand for the low-yielding currency.