INR was under pressure last week as it touched 15-months lows against the USD amid growing concerns over capital outflows as well as concern over trade deficit due to rising crude oil prices. In the past one month, the INR has lost 3% in value to become the worst-performing currency amongst its peers. On a weekly basis INR depreciated by 0.69% against the USD.
INR looks oversold as India’s macros are strong enough to withstand short term market volatility. Easing geo political tensions has led to improving risk appetite in global markets in the last few weeks and this has led to equity indices rising from lows. India’s strong fx reserves, growth outlook and expectations of improved corporate results will help INR going forward. The USD 16 billion Walmart-Flipkart buyout is also highly positive for the outlook for the INR.
Oil jumped to its highest levels since late-2014 on Monday to cross the significant USD 75 a barrel and is currently trading at a level of USD 77.12 a barrel. The rise in oil prices was largely boosted by Venezuela’s deepening economic crisis and a decision by US President Donald Trump to withdraw from the nuclear deal with Iran. Further the prospect of new US sanctions on Iran has tightened the outlook for Middle East oil supply at a time when global crude production is only just keeping pace with rising demand. Iran is among the major oil producer countries in the world.
FIIs continued to be a net seller in Indian equities and debt segments, adding further pressure on the INR. This month, fund outflows from FIIs has been to the tune of USD 1.8 billion in equity and debt segment.
USD fell marginally last week after the release of soft inflation data on Thursday. However, the demand for USD remained underpinned on the back of rising U.S. Treasury yields and broadly solid economic data, which continues to boost the expectations for a steady pace of interest rate increases by the Federal Reserve this year. USD Index (DXY), which tracks the movement of the USD against six major currencies, fell by 0.03% on a week on week basis and is at a level of 92.54.
U.S. Labour Department reported that annual inflation rose 2.5% in the month of April, in line with the expectations, but monthly inflation rose by a smaller-than-forecast 0.2%. Core or underlying inflation rose 2.1% year-on-year last month and was up 0.1% from a month earlier. The data indicated that the Fed would stick to plans for two additional rate hikes this year, tampering the expectation of faster pace of monetary tightening.
USD received additional support during mid of the week amid heightened geopolitical risk ahead of an announcement on the future of the Iran nuclear deal and after a hawkish signal from Federal Reserve Chairman Jerome Powell.
On Tuesday, Trump pulled the U.S. out of the international nuclear deal with Iran, raising the risk of conflict in the Middle East and a knock-on effect for global oil supplies and the global economy as Iran will face sanctions again.
Fed Chairman Jerome Powell warned in a speech in Zurich that markets should not be surprised by further policy tightening.
Michigan’s preliminary consumer expectations rose to a reading of 89.5 for May against the expectation of 88, followed by 88.4 in April, while consumer sentiment rose to a reading of 98.8, against the expectation of 98.5,
U.S. Department of Labour on Thursday reported that the number of individuals filing for initial jobless benefits in the week ended 5th May remained unchanged to 211,000 from last week’s claim of 211,000 and against the expectation of a rise of 8,000 to 219,000.
Euro was under pressure after a soft patch of economic data fuelled speculation that the European Central Bank may not be able to end its asset purchasing stimulus program in September. Germany factory order data shows that it declined by 0.9% in the month of March against the expectation of a rise 0.5% followed by a fall of 0.2% February.
Asian currencies were largely down last week against the USD. Australian Dollar appreciated by 0.05%. New Zealand Dollar depreciated by 0.73%. Japanese Yen depreciated by 0.25% against the USD and depreciated by 0.1% against the Euro. South Korean Won appreciated by 0.72%, Philippines Peso depreciated by 1.14%, Indonesian Rupiah depreciated by 0.11%, Indian Rupee depreciated by 0.69% against the USD and depreciated by 0.45% against the Euro, Chinese Yuan depreciated by 0.45% against USD, Malaysian Ringgit depreciated by 0.26% and Thai Baht depreciated by 0.51%.