INR opened strongly at 68.88 against USD after it crossed the barrier of 69.20 on 24th of July 2019. USD/INR is maintaining the rate at which it closed last week. Many analysts are expecting the greenback to increase further due to increasing crude oil prices. Regular foreign fund outflows throughout last week also weighed in the weakness of INR. However, fed rate cut expectations on Wednesday and trade deal talks between US and China scheduled this week will likely help INR bounce back.
Key Factor USD-INR this week
Rising Crude Oil Prices
According to estimates by ING US the crude oil inventories have declined by 40 million barrels in the past one month. Tensions in the Middle East with Iran are further increasing crude oil prices due to disruption (Seized UK oil tanker) of oil shipments through the Strait of Hormuz, Persian Gulf. Any escalation in the future would only lead the crude oil prices to increase further given the declining inventories data.
Domestic Equity Market
The domestic Equity market sighed a sign a relief since above average rainfall throughout India in the past two weeks. Data showed that India would receive only 7% lower rainfall compared to previous year. IMD experts had estimated at 24% lower rainfall this monsoon. Sensex and Nifty ended the week on Friday on a high note recovering from 6-day losing streak. We expect the domestic equity market to perform better in the coming week thereby supporting INR.
US Trade Data
According to release of economic data by the Commerce Department of the US Government, GDP grew by 2.1% in the second quarter narrowly above 2% predicted by experts. US stocks rose based on strong consumer spending data and earnings report. However, July job reports by Refinitiv showed that 170,000-nonfarm payroll have been added compared to 2,24,000 in June and unemployment rate is at 3.7%. The US economy continued to do well even after evident global economic slowdown and fears of recession. We can expect USD to remain strong in the coming week after the positive outlook on US economic data released on Friday.
Fed Rate Cut
Fed rates are to be cut for the first time in a decade on Wednesday. Investors throughout the world are waiting for the decision to be announced and experts predict the rates to be cut by a quarter point. The rate cut speculation has however been in the news for some time now. However, the expectation might have absorbed the future impact it may cause in global economies. Further, INR is set to be volatile in the coming days.
US China Trade Talks
US Treasury Secretary Mr Steven Mnuchin and Trade Representative Mr Robert Lighthizer would meet the Chinese Vice Premier Liu He for face to face talks on 30th July in Shanghai.
Trump has levied billions of dollars tariff on Chinese products imported in USA and threatened a further 300 billion plus tariffs. However, President Trump predicts a delay in trade deal with China until 2020 elections in USA as the Chinese expect easier trade talks with the Democrats (if democrats win).