USD/INR traded within a particularly tight....>

INDIA: USD/INR traded within a particularly tight range Tuesday, closing at

68.86, just below the Monday close but still comfortably above last week's

lowest levels. Today marked the RBI's much-hyped FX swap auction (RBI offer INR

in exchange for USD over a three-year term, thereby boosting FX reserves and

improving INR liquidity). The currency swap auction was over three-times

oversubscribed, with the central bank not yet commenting on whether further

operations will be held. The operation has kept INR hedging costs acutely low,

buoying the recent sharp foreign inflows into bonds and equities and further

swap operations could extend this trend further ahead of April elections. It

remains to be seen whether the RBI could use the new currency swap operations as

an FX-management tool, intervening to boost liquidity when the INR becomes

uncomfortably strong.

-Technically, the USD/INR RSI is no longer showing the pair as oversold, which

had slowed some of the recent sharp falls below 70. The 50- and 200-dmas are on

the cusp of forming a death cross pattern (50-dma below 200-dma), which may be

used as a catalyst for another leg lower in the pair.