It was supposed to be a quiet Monday as US markets were shut for trading. As a result US dollar traded within a tight range of 61:54 and 61:67 against the Indian rupee on spot. In the domestic market, interest rate futures were launched on MCX-SX. Long bonds of GOI continued there rally as 10 year yields traded to 8:51/52%.
Economic news from China was not so encouraging as GDP growth slowed in Q4 of last year to 7.7% from 7.8% in Q3. On a q/q basis growth slowed from 2.2% in Q3 to 1.8% in Q4. Y/Y growth has moved between 7.8% and 7.5% last year. In December,† Industrial-production gains slowed to a five-month low of 9.7% and Retail sales rose 13.6%. Fixed asset investment growth slowed to 19.6% in 2013 vs 20.6% in 2012.
In 2014, economic slowdown in China can intensify† further and as a result both consumption as well as investment growth can be affected adversely. We also need to keep an eye on development in non-traditional banking sector , aka, shadow banks, where rampant credit growth of last 7 years coupled with lose credit quality, threatens to snow ball into a liquidity and solvency issue for the financial sector of the country.
Over this week, we expect USD/INR to stay within a range of 61:00/61:30 and 61:75/62:00 on spot. On charts, lower lows and lower highs have marked the trend in the pair ever since the 68.85 peak, last August. Therefore, a daily close above 62:60, is needed to break the down trend and signal that the uptrend has began.
By Anindya Banerjee, currency analyst, Kotak Securities
NOTE: The views expressed are those of the author.