Rupee opens flat; markets in tight ranges

Rupee opens flat; markets in tight ranges

11 Dec 2019 09:13 AM
 

USD/INR – The Indian rupee opened at 70.89 compared to yesterday’s close of 70.92. Corporate flows and updates on the U.S.-China trade are the main factors to drive the rupee. In the absence of any major external triggers, trading activity remains subdued and actual flows are guiding the direction in the rupee. In the recent times, rupee has benefitted from good dollar-selling interest offshore and from M&A (mergers and acquisitions) flows. Those flows have made the rupee the best-performing Asian currency so far this month. In December, the rupee has risen by 1.2% so far, heading for its best performance in nine months. Meanwhile, the dollar index edged higher on Wednesday ahead of the Fed’s interest-rate decision. With the U.S. central bank widely expected to keep its rates unchanged and reaffirm that it is on pause, the focus will be on the so-called dot plot. After three consecutive rate cuts, Federal Reserve officials believe they have done enough to stabilize the economy. With the Fed firmly “on hold”, focus will be on the press conference and the dot plot for guidance for 2020. In addition to the Fed outcome, traders will focus on the U.S. retail inflation data. Headline November inflation is pegged at 2% year-on-year and core inflation at 2.3% by economists polled by Reuters. Asian currencies were trading mixed on Wednesday before the Fed decision. Chinese Yuan edged lower to 7.0384 to the dollar amid uncertainty over whether President Donald Trump will delay additional tariffs on Chinese goods that are scheduled to take effect on Dec. 15. Regional equities struggled for direction. The benchmark equity indexes of Japan and Hong Kong incurred minor losses. The SGX Nifty indicated a muted beginning for Indian shares.

EUR/USD – The euro stood at 1.1092, having risen 0.23% on Tuesday after the ZEW research institute's monthly gauge on economic morale among German investors showed improvement far beyond that of December. The index rose to near a two-year high of 10.7 from -2.1 a month earlier, exceeding even the highest forecast in a Reuters poll of economists, aided by an unexpected rise in October exports boosting hope for an upturn in Europe's biggest economy. Germany has been going through a soft patch as its export-oriented manufacturers struggle against a backdrop of trade friction, an ailing car industry and uncertainties over Britain's planned departure from the European Union. The euro's strength helped to push down the dollar index to 97.515, not far from a one-month low of 97.350 touched on Friday. The boost to the euro was unlikely to significantly change its direction against the greenback. The common currency is down about 3.3% against the dollar this year. Currency market moves on late Tuesday were fairly muted as investors awaited developments from central bank meetings in the United States and Europe and as a Dec. 15 deadline for the next wave of U.S. tariffs on Chinese goods fed caution in global markets. Investors are almost certain the Federal Reserve will leave rates unchanged when its two-day meeting ends on Wednesday, while the European Central Bank is likewise expected to keep interest rates steady on Thursday.

GBP/USD – The British pound slipped early on Wednesday after a poll showed a narrowing lead for Prime Minister Boris Johnson's Conservative Party in an election later in the week, while U.S. dollar movement looked to the Federal Reserve's policy meeting. Investors were also focusing on what U.S. President Donald Trump will do with U.S. tariffs on nearly $160 billion worth of Chinese consumer goods, due to set in on Dec. 15. Investors have generally believed the tariffs would be at least postponed to salvage a trade deal with China. It looks like the ‘lull before the storm’. Markets have long believed the additional tariffs will be avoided," said a market economist at Sumitomo Mitsui Trust Bank. Sterling fell 0.25% to $1.3122, giving back about a cent after hitting an 8 1/2-month high of 1.3215 on Tuesday. It also slipped to 0.8455 pound per euro, off its 2 1/2-year high of 0.8394 touched earlier this week. On the yen, it changed hands at 142.77 yen, down from Tuesday's seven-month high around 143.39. A closely watched model from pollsters YouGov showed Britain's prime minister is on course to win a majority of 28 in parliament at Thursday's election, down sharply from a forecast of 68 last month. The pound had rallied for the past couple of months on rising expectations that Johnson will secure an outright majority in parliament after a Dec. 12 election to end Britain's political paralysis over Brexit since 2016.

USD/JPY – The dollar was traded at 108.80 to a Yen, flat in early Asia after a gain of 0.15% the previous day. It drew firmness from a Wall Street Journal report of officials from both the United States and China saying the groundwork was being laid to push back the Dec. 15 tariff deadline. The White House's top economic and trade advisers are expected to meet in coming days with Trump over that decision, one person briefed on the situation said. USD/JPY and other JPY crosses do little in Asia trades as the market participants are wary of taking large positions ahead of key risk events – looming US China trade deadline, Central Bank meetings at the Fed and ECB, British PM election. Japanese wholesale prices rose 0.1% in the year to November, Bank of Japan data showed on Wednesday. The rise in the corporate goods price index (CGPI), which measures the price companies charge each other for their goods and services, compares with the median market forecast percent for no change from the previous year and follows a 0.4% annual decrease in October. Overall final goods prices - the prices of finished products charged to businesses - fell 2.0% from a year earlier. Wholesale prices are moving up but still well short of levels for 2% inflation. Bank of Japan likely to maintain the current policy stance, hoping for prices to move up.

 

Important data releases today

Time

CCY

Event

Forecast

Previous

19:00

USD

Core CPI (MoM) (Nov)

0.2%

0.2%

21:00

USD

Crude Oil Inventories

-2.763M

-4.856M