INR rallied firmly ahead of the close.........>

INDIA: INR rallied firmly ahead of the close Thursday, pressing USD/INR to the

lowest levels since January 7th on an intraday basis, and the lowest close since

mid-August.

-The rally in INR comes despite the announcement of the RBI's first currency

swap operation in almost six years, with the RBI set to auction $5bln in USD/INR

swaps in an effort to press the market against further INR strength. While

USD/INR gapped higher to print 69.7446, the gains were short-lived with most

pointing to heavy repatriation flow in the latter half of the session.

-While the RBI's currency swap activity may have been meant to deter INR

strength, some have commented it could have the reverse effect via a steeper

sovereign curve and lower domestic inbound hedging costs. The operation is due

on March 26th.

-Technically, USD/INR has a relatively free run down toward the 68.50 levels and

the imminent formation of a death cross (50-dma < 200-dma) could add further

pressure. Whether the RBI will tolerate further INR strength, however, is a

different matter.