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Forex Flash: RBI may have more room for monetary easing – TD Securities

FXstreet.com (Barcelona) - The USD/INR has risen quite sharply over the last 10 trading days, and some analysts believe that based on recent inflation readings from India which have come in below estimates, the pair could set up for additional gains going forward as the RBI now has more room for additional easing.

According to Cristian Maggio, Senior Emerging Markets Strategist at TD Securities, “WPI inflation fell from 5.96% in March to 4.89% Y/Y in April, mostly driven by food, as well as energy, non-metallic mineral products, metals and alloys. The print was sharply below the consensus expectations for 5.45% and our 5.40% forecast. Inflation has therefore dropped in the lower range of the RBI’s 4-6% tolerance band, which gives more room for the RBI to continue monetary easing."

Furthermore he added, “Inflation has been declining in a non-linear way since September 2012, and recently this trend has intensified, allowing the RBI to ease rates by 50bp in 2013. Governor Subbarao recently highlighted that the room for Monetary is shrinking, however the unexpected fall of WPI well within the RBI’s tolerance band may support further cuts."

To conclude he commented, “Economic growth is not there yet to support rupee valuations. However, with the recession phase approaching its end and the rebound supported by monetary easing, we see the possibility of better Sensex performance going forward, to which USD/INR is strongly correlated. Based on our revised forecasts, we expect the pair at 53.9 in Q2, 53.8 in Q3 and 54.0 in Q4."

Forex: EUR/JPY closes higher for 5th day in a row

The EUR/JPY closed the day up 15 pips to finish at 132.25. At one point the pair traded as high as 132.76 (highest level since Jan 2010) but was unable to maintain a firm bid at these levels and leaked lower later in the US Session. The German ZEW Index was released earlier in the day, coming in at 36.4 actual vs. 38.3 forecast. It will be another busy day of economic data out of Europe with EUR GDP figures due out at 9:00GMT.
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Forex Flash: Australian economy would benefit from another 25 bp RBA rate cut - NAB

According to NAB analysts: “Given the structural adjustment occurring in the [Australian] economy at present, as well as softness in labour market conditions, we still believe the economy would benefit from another 25 bp rate cut this year (November),” the NAB says, adding: “this would take the RBA’s cash rate to 2.50%. However, further deterioration in labour market conditions could see earlier action and possibly more than one cut,” they suggest.
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