India Rupee Sees Biggest Weekly Fall In 3 Months On Trade Tensions

India Rupee Sees Biggest Weekly Fall In 3 Months On Trade Tensions

03 Aug 2019 03:40 PM
 

Weekly Synopsis

 

Indian Rupee

The Indian rupee posted its biggest weekly decline against the dollar in three months, as a rise in trade tensions after U.S. President Donald Trump’s announcement of additional tariffs on Chinese goods triggered a selloff across reginal currencies and risk aversion for emerging markets. The rupee ended at 69.5850 to the dollar, against its previous close of 69.05. The currency opened at 69.25, slightly below the keenly-watched level of 69.20 and also posted its biggest single-session loss since May 13. The local currency also lost ground for a fourth consecutive week, marking its biggest losing streak in 10 months and also posting its biggest weekly decline since the week ended May 10. It trades in a weekly range between 69.6575 to 68.66 against the US Dollar.

India's foreign exchange reserves fell to $429.65 billion as of July 26, compared with $430.38 billion a week earlier, the Reserve Bank of India said on Friday. Changes in foreign currency assets, expressed in dollar terms, include the effect of appreciation or depreciation of other currencies held in its reserves. Foreign exchange reserves include India's Reserve Tranche position in the International Monetary Fund.

Crude oil prices rebounded Friday, as fears the U.S.-China trade war may hurt oil demand from Beijing were eased somewhat after President Donald Trump reportedly said that proposed tariffs on China could be delayed or halted if Beijing “takes positive action. On the New York Mercantile Exchange crude futures rose 3.2% to $55.66 a barrel, while on London's Intercontinental Exchange, Brent jumped $1.39 to $61.89 a barrel.

Gold ETFs are steady, preparing for a drive to the upside amid increased expectations of further U.S. interest rate cuts. Gold is believed by many investors to be inversely correlated with interest rates. Rising interest rates make bonds and other fixed-income investments more attractive, so money will flow into higher-yielding investments, such as bonds and money market funds, and out of gold, which offers no yield at all during times of higher interest rates, and back into gold ETFs. Gold is targeting a third straight month of gains and sitting near six-year highs. Gold bulls are expecting good news to come their way in the form of a U.S. interest rate cut. October gold futures were last up $0.40 an ounce at 1,435.50.

Global Market

The U.S. dollar fell after the jobs report failed to diminish expectations of the Federal Reserve cutting rates next month. The U.S. economy added just 164,000 jobs in July, compared to 193,000 in June, while job creation was as expected and the unemployment rate held steady near 50-year lows. The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, fell 0.2% to 97.975.

The U.S. economy created fewer jobs in July, while the unemployment rate held steady and annual wage inflation ticked higher, according to official government data released on Friday. Nonfarm payrolls rose by 164,000 in July, in line with consensus expectations. The jobless rate was unchanged at 3.7%, also in line with forecasts. Wage inflation grew 3.2% on an annualized basis. Consensus had expected no change to the prior month’s 3.1% rise.

U.S. investors' inflation expectations were hammered on Thursday, a day after the U.S. Federal Reserve cut interest rates for the first time since 2008, while Chairman Jerome Powell signaled the central bank has not entered an outright easing cycle. U.S. President Donald Trump's threat of more tariffs on Chinese goods further eroded investors' confidence on whether domestic inflation would ever reach the Fed's 2% goal.

U.S. construction spending fell by the most in seven month in June as investment in private construction projects tumbled to a more than 1-1/2-year low. The Commerce Department said on Thursday construction spending dropped 1.3%, the biggest decline since last November. Data for May was revised up to show construction outlays falling 0.5% instead of decreasing 0.8% as previously reported.

U.S. mortgage applications declined last week as potential home buyers scaled back on demand for home loans due to tight housing supply. The Washington-based group's seasonally adjusted index on loan requests, both to buy a home and refinance one, fell 1.4% to 484.0 from 490.8 in the week ended July 26.The group's barometer on loan applications for home purchases, which is seen as a proxy on future housing activity, fell 3.0% to 253.0.

U.S. labor costs rose at their slowest pace in 1-1/2 years in the second quarter, the latest indication of benign inflation that could allow the Federal Reserve to cut interest rates on Wednesday for the first time in a decade. While private payrolls rebounded this month, the pace of growth remained moderate, adding to the host of factors that are likely to encourage the Fed to announce its first rate cut since 2008 when policymakers conclude a two-day meeting.

U.S. consumer spending and prices rose moderately in June, pointing to slower economic growth and benign inflation that could see the Federal Reserve cutting interest rates on Wednesday for the first time in a decade. The report from the Commerce Department on Tuesday showing the smallest gain in consumer spending in four months came as Fed officials started a two-day policy meeting. The 10-year old economic expansion, the longest in history, is slowing as the stimulus from last year's $1.5 trillion tax cut package fades.

Retail trade in the euro zone rose 1.1% in June on the month, the EU's statistics agency Eurostat said on Friday, a sign that consumers may help support a weakening economy. Retail sales in the 19-country euro zone rose far more than expected, who on average had forecast a 0.2% rise compared with May. Trade was lifted by spending on vehicle fuel, food and drink and a sharp increase in sales of clothing and shoes, Eurostat data showed, more than offsetting the 0.6% drop in sales recorded in May.

Manufacturing activity in the euro zone contracted at its steepest rate since late 2012 last month as demand sank puncturing sentiment among factory managers. IHS Markit's July final manufacturing Purchasing Managers' Index was 46.5, just above an earlier flash reading of 46.4 but below June's 47.6 and chalking up its sixth straight month below the 50 level that separates growth from contraction.

China on Friday vowed to fight back against U.S. President Donald Trump's abrupt decision to slap 10% tariffs on the remaining $300 billion in Chinese imports, a move that ended a month-long trade truce. China's position is very clear that if U.S. wishes to talk, then we will talk, if they want to fight, then we will fight," Zhang told reporters in New York, also signaling that trade tensions could hurt cooperation between the countries on dealing with North Korea.

Local Market

Indian shares plunged more than 1% on Friday dragged by auto and metal counters, after broader Asia took a beating following U.S. President Donald Trump's threat to impose further tariffs on Chinese imports from next month. Trump vowed to slap a 10% tariff on $300 billion of Chinese imports from Sept. 1, sharply raising the stakes in a bruising trade war with China and jolting global financial markets. In India, the broader NSE index fell 1.17% at 10,853.90, while the benchmark BSE index was 1.08% down at 36,629.77.

Foreign outflows from Indian equities also continued to hurt the currency, as these investors net sold over $500 million in the first four sessions of the week. However, fresh escalation of trade tensions has also increased bets of policy easing from the Federal Reserve to support growth. Earlier this week, the Fed cut its rate by 25 basis points but said that the move was a mid-cycle policy “adjustment” and not the start of “a long series of rate cuts.

India is infusing an additional 100 billion rupees in housing finance companies to boost lending in the sector, a government statement said on Friday, at a time when the shadow banking industry is under stress due to lack of liquidity. To further ease flow of funds in the housing sector, the National Housing Bank is making available from today, a liquidity infusion facility of 100 billion rupees for housing finance companies as additional liquidity.

India's fiscal deficit in the three months ending in June stood at 4.32 trillion rupees ($62.80 billion), or 61.4% of the budgeted target for the current fiscal year, government data showed on Wednesday. Net tax receipts in the first three months of the fiscal year were 2.51 trillion rupees, while total expenditure was 7.22 trillion rupees, government data showed. The government has set a fiscal deficit target of 3.4% for 2019/20, same as 2018/19.