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This article is more than 2 year old.

Rupee under scanner amid poor macros and trade war uncertainties

Mini

On the domestic front, the negative effect on the rupee started when Moody's cut India's outlook to 'negative from 'stable', this acted as a first trigger point for the rupee to depreciate.

Rupee under scanner amid poor macros and trade war uncertainties
Historically, USD/INR has always been a peculiar currency pair, the longer it stays in a band, the greater the probability of it moving faster in one direction. It moves like an arrow released from its bow. Initially, the broad range was 70.60 to 71.20 and now there is a shift in the range to 71.40 to 72.60 levels, a technical break on either side may define the further course of direction. As the forex reserves data speak, the Reserve Bank of India has already accumulated enough reserves in the past few weeks and may look forward to control in case of excess volatility.
On the domestic front, the negative effect on the rupee started when Moody's cut India's outlook to 'negative from 'stable', this acted as a first trigger point for the rupee to depreciate.
The anticipation of macro data points was already expected to be weak starting from IIP data, which came in at an eight-year low of -4.3 percent (8 year low), reflecting both consumer durables and capital growth, which are the key growth engines, remained negative for September.
The CPI inflation has breached the RBI's medium-term target of 4 percent and came in at 4.62 percent. Vegetable inflation jumped to 26 percent from 11.4 percent month-on-month, while pulses inflation shot up to 11.72 percent from 8.4 percent MoM. Unseasonal rainfall also remained a contributor due to crops getting destroyed.
We have the trade deficit number lined up as well, where the anticipation remains that exports might have declined and the overall deficit will be higher around $13 billion. GDP data is due on November 29, which is expected to be sub 5 percent levels.
Certain market participants are discounting in a 25 bps cut in RBI's December Monetary policy due on December 5. Bbut now the central bank needs to tackle two aspects into account simultaneously and take a call: one is growth and the other is inflation. But considering the core inflation is still lower at 3.5 percent and expectations low GDP number in Q2, the MPC may decide to cut rates by 25bps in the coming policy with further stance to be neutral and data-dependent.
Similar story continued with China, factory output, retail sales and fixed asset investments all missed estimates.
On the trade war front, US President Donald Trump has been teasing the markets stating that the US-China trade deal could happen "soon", but at the same time repeating his threats to raise tariffs if a deal does not get materialise. While China also does not want a one-sided deal as well. The offshore
Yuan retreated from 6.9530 per dollar levels last week back to 7.0292 a dollar levels.
Federal Reserve Chair Jerome Powell offered an optimistic outlook for the economy, further hinting towards the case of the central bank to pause its monetary easing. US CPI jumped in seven months in October, as the cost of healthcare surged in more than three years.
Sterling continues to be in limbo ahead of December 12 election.
Crude oil prices have been hovering around $62 a barrrel.
DXY is trading around 98.37 levels, and as 58 percent of the index is dominated by Euro, one needs to keep a track on EURUSD having an important support of 1.0940 levels and resistance at 1.1060 levels.
Fresh concerns over Hong Kong unrest which currently is just a spark but if amplified can lead to global markets getting volatile.
Kunal Sodhani, AVP, Treasury: Global Trading Center, Shinhan Bank India
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