Rupee keep to decreased slightly

Persistent worries about the impact of Europe's debt crisis on the global economy snapped investor's risk appetite, in turn weighed down the Indian rupee alongside most of its regional peers on Monday, January 09, 2012, beginning second week of 2012. The domestic currency opened lower 12 paise at Rs. 52.83 to a dollar and edged lower to 52.85. Local shares, also a victim of global risk aversion failed to prop up the domestic unit. In the meantime, the US dollar is seen marginally weakening against majors from its early highs that would have probably aided rupee to a high of 52.75 so far during the day. In the spot currency market, the Indian unit was last seen trading at 52.75, down marginally by 3 paise or 0.06% as compared to previous close at 52.72.

The European unit continued to hover near its 16 month low, dipping to a low of 1.2665 against the US dollar in early Asia on Monday and currently seen at around 1.2696, marginally up from its intra day lows. The pair fell to its 16-month low of 1.2696 on Friday to end down for a third consecutive session. The weakness in Euro was largely on the back of disappointing retail sales and German Factory Orders reports from the Euro zone. Improved positive data from the US also failed to have any significant impact on risk sentiments as focus continued to remain on worries surrounding Euro zone. This week, major focus will remain on US retail sales and ECB monetary policy meeting, bonds auctions in Spain & Italy - all of which are likely to determine short-term direction across the global markets.

Meanwhile, DXY Index advanced to its 15-month high of 81.50 on Friday supported by broad-based weakness in risk correlated currencies. The US Dollar Index, which measures the performance of the U.S. unit against a basket of six currencies, is currently up 0.20% at around 81.42 levels. Among Asian currencies, the Taiwan dollar is up 0.002% at 30.23, the South Korean won lost 0.20% at 1165.07 while the Indonesian Rupiah fell 1.44% at 9228.75 as against the US dollar.

Domestic benchmark indices also edged lower in early trade on weak regional peers. Asian stocks declined on Monday, as renewed gloom about the fallout from the European sovereign debt crisis overshadowed signs of vigour in the US economy. Foreign institutional investors (FIIs) sold Indian shares worth Rs. 28.63 crore on Saturday, as per provisional data from the stock exchanges. At the time of writing, India's key benchmark BSE Sensex fell 132 points at around 15717 while S&P CNX Nifty is down 42 points at 4705.

Meanwhile, starting off the New Year on a liberalisation note, the Indian government on 1 January 2012 announced its decision to allow Qualified Foreign Investors (QFIs) to directly invest in the Indian equity market from 15 January 2012. The move comes against the backdrop of significant foreign capital outflows from the domestic equity market in recent times, which has resulted in rupee volatility. A QFI is an individual, group or association resident in a foreign country that is compliant with Financial Action Task Force (FATF) standards. QFIs do not include FIIs/sub accounts. In August last year, the government allowed foreign investors to directly invest up to $13 billion in equity and debt schemes of mutual funds. Qualified foreign investors, or QFIs, will now be able to invest individually up to 5% of the capital of the Indian company. Cumulatively, QFIs can invest up to 10% of the capital of the company being invested in.

In the domestic currency futures market on the NSE, the front month January contract opened on Monday at 53.00, higher than the spot market rupee. The contract hit an intraday high at 53.09 and registered a low at around 53.00 so far during the day. At the time of writing, the NSE as well as MCX January 2012 USD/INR contract was trading at around 53.01, higher by around 6 paise or 0.12% as compared to previous close at 52.94.