Feb 23 2019

USDINR Ideas- Divergence vs Asians

Last week our in-house research desk highlighted an interesting phenomenon – major equity indices globally (US, Asian, European) were surging while our equity indices (NSE, BSE) were on a declining path. This is perplexing in particular, despite the fact that historically, Nifty has had a high positive correlation with the Dow.

Something similar is happening in the forex markets as well – the Indian Rupee compared to other Asian currencies. Let’s have a detailed look.

Check out a rebased (based to 0 as on 1 Jan 2019 till date) chart below of the Rupee in comparison to other Asian currencies.

A first glance is enough to highlight how rupee has been a complete outlier to the others. The Indian Rupee (orange line) has weakened 2.4% since the beginning of New Year. Korean Won (green line), to which rupee usually has a high positive correlation, has weakened only 0.9%.

The two best performing currencies have been Chinese Yuan (purple line) and Indonesian Rupiah (blue line) – they have surged 2.4% and 2.2% respectively. Singapore dollar (red line) and Malaysian Ringgit (yellow line) have posted moderate gains of 0.9% and 1.3% respectively. The Euro (grey line), taken as a proxy to inverse dollar index, has weakened 1.07% – suggesting some dollar strength against international major currencies. 

One could reason various factors – uncertainty about Indian election results, sudden surge in crude prices (24% jump since 1 Jan 2019), continued uncertainty on US China trade war, global growth slowdown, etc.

Undoubtedly unusual times – hope risk managers are thinking beyond their usual (and customary) risk management practices.