India Rupee Snaps 2-Week Rise On India’s Outlook Cut, RBI's Dollar Buy

India Rupee Snaps 2-Week Rise On India’s Outlook Cut, RBI's Dollar Buy

08 Nov 2019 06:37 PM

Indian Rupee

The Indian rupee saw its first weekly fall in three weeks against the U.S. currency, after Moody’s cut the country's rating outlook and on persistent dollar purchases, The rupee settled at 71.29 to a dollar, its lowest since Oct. 16, against 70.96 at the previous close. The local unit had opened at 71.30, before falling to the day’s low of 71.33. The unit depreciated 0.7% this week, logging its biggest weekly fall since the week ended Aug. 23, and after appreciating total of 0.5% in the last two sessions. Indian rupee trade in the range of 70.55-71.3250 this week.

India's foreign exchange reserves rose to $446.10 billion as of Nov 1, compared with $442.58 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.

Moody's Investors Service on Thursday changed its outlook on India's ratings to "negative" from "stable", citing increasing risks that the country's economic growth will remain lower than in the past. The outlook partly reflects government and policy ineffectiveness in addressing economic weakness, which led to an increase in debt burden from already high levels.

India should hold talks with the European Union for a free trade agreement, the government said on Tuesday, a day after it refused to join a China-backed regional trade pact for fear of a flood of cheap Chinese imports. Trade Minister Piyush Goyal said sectors such as gems, textiles and agriculture have pushed for a trade pact with the EU. German Chancellor Angela Merkel has also called for talks to restart to finalise an agreement.

Global Market

The dollar was consolidating in early trade in Friday after surging to a three-week high on Thursday in response to growing confidence that the economically damaging tariffs enacted by the U.S. and China on each other’s products will be reversed. The dollar index was at 97.992. The index tracks the greenback against a basket of developed market currencies.

The number of Americans filing applications for unemployment benefits fell more than expected last week. Initial claims for state unemployment benefits decreased 8,000 to a seasonally adjusted 211,000 for the week ended Nov. 2, the Labor Department said. Data for the prior week was revised to show 1,000 more applications received than previously reported.

American workers were unexpectedly less productive during the third quarter, with growth in their output failing to keep up with hours worked. The Labor Department said on Wednesday nonfarm productivity, which measures hourly output per worker, fell at a 0.3% annualized rate between July and September, The last drop that was sharper was in the fourth quarter of 2015.

The U.S. trade deficit fell 4.7% to $52.5 billion in September as the country recorded its first petroleum surplus, but overall imports and exports otherwise fell under the weight of rising global tariffs and a slowing world economy. The August trade deficit was revised to a slightly wider $55.04 billion. While the petroleum surplus of $252 million was the first since 1978.

New orders for U.S.-made goods fell more than expected in September and business spending on equipment was slightly weaker than initially thought, suggesting that manufacturing remains soft amid the ongoing U.S.-China trade war. Factory goods orders declined 0.6% after dipping by an unrevised 0.1% in August, the Commerce Department said on Monday.

Euro zone factory activity contracted sharply last month as demand was again whacked by a trade war being waged by the United States and by the continued lack of clarity over Britain's departure from the European Union. IHS Markit's final manufacturing Purchasing Managers' Index (PMI) was 45.9, seven-year low reading of 45.7 and its ninth month below the 50 mark separating growth from contraction.

Euro zone business activity expanded slightly faster than expected last month but remained close to stagnation. European Central Bank reignited its 2.6 trillion euro bond-buying program to try and stimulate inflation and growth. IHS Markit's final euro zone composite Purchasing Managers' Index (PMI), seen as a good gauge of economic health, rose to 50.6 from September's more than six-year low of 50.1 and above a preliminary estimate of 50.2.

German engineering orders fell by 4% in September in real terms from the previous year as trade conflicts and a declining global investment appetite weigh on orders for German goods. VDMA said orders were 8% lower in the first nine months of 2019 than in the same period of the previous year.

The German economy saw a glimmer of hope at the end of the third quarter, with factory orders increasing for the first time in three months. Demand rose 1.3% in September, far exceeding estimates of a 0.1% gain. The jump was driven by solid pickup in investment and consumer goods, with demand from outside the euro area providing a particular boost.

Euro zone industry prices edged up slightly in September after a larger fall in the previous month, official estimates showed on Tuesday, as the bloc continues to struggle with low inflation. The European Union statistics agency Eurostat said prices at factory gates in the 19 countries sharing the euro rose by 0.1% in September on the month. On the year, prices dropped by 1.2%, also in line with market expectations.

British employers' demand for staff grew in October at the slowest rate in almost eight years. A monthly index of jobs vacancies from the Recruitment and Employment Confederation and accountants KPMG fell to 51.7 from 52.6 in September, its lowest level since January 2012. Friday's REC report - which is monitored by the BoE - showed permanent job placements fell for an eighth month running and at a faster rate than in September.

Local Market

Indian shares closed down nearly 1% on Friday after Moody's Investors Service flagged domestic growth risks and cut its ratings outlook for the country, as well as some corporate companies and financial institutions. The NSE Nifty 50 index closed down 0.86% at 11,908.15, while the benchmark BSE index finished 0.84% lower at 40,311.21. For the week, the NSE index eked out a gain of 0.15%, while the BSE index rose 0.39%.

The realty index was the top gainer with a 1.66% rise, while the heavy-weight public sector index fell 2.16%. Yes Bank closed up 3.76% and was the top gainer on the NSE index, while Bharti Infratel Ltd was the top loser, posting a 4.9% drop. Activity in India's dominant services industry contracted for a second consecutive month in October due to muted demand.