INR opened slightly higher at 68.50 on Friday morning after closing eleven months high at 68.30 yesterday. Main factor for strong rupee has been comments by US Federal Reserve Chair Mr Jerome Powell to “act as appropriate” hinting that fed rate cut would happen earlier than expected. However, increase in crude oil prices helped USD bounce back a little. Here are the five points for today’s USD-INR trade:
Jerome Powell Comments on Fed Rate Cut
US Federal Reserve Chair Mr Jerome Powell told the congress committee on Wednesday that flagging global growth and trade tensions continue to weigh on the US economic outlook and the central bank is ready to act as appropriate to boost growth. The emerging markets currencies appreciated after the comments and also the world’s stock market appreciated at the same time. We can expect fed rate cut by end of the month or next month or beginning of next month.
Crude Oil Prices
Rising crude oil prices capped gains by fed rate cut hints. Gulf of Mexico storm and tensions with Iran after they tried to seize British oil tanker in Persian Gulf are main factors increasing the crude oil prices. Crude oil market continued its bullish trend hitting highest level since May at USD 60 hinting further increase is expected. Brent market too broke the resistance mark of USD 67.50 and might touch USD 70 within this month.
Dollar Index
The dollar index settled at 96.87 yesterday dropping by 0.22 percent. Greenbacks strength against foreign currencies has been decreasing since the beginning of July and expect further USD/INR decline in the coming days.
India’s Financial Stability
The liquidity crunch is known fact in the current Indian Economy. However, RBI asserting that the Indian financial system are stable owing to decline of NPA ratio from previous year by 9.30% and expecting similar percentage of drop this financial year. However, NBFC crisis still grips India’s debt market and there are no favourable policies by the centre or RBI to assist NBFCs. Further deepening of this crisis will have an impact on USD/INR.
US Trade Deal with China
After promises at the G20 summit in Japan last month by President Trump to President Xi that no new tariff will be imposed on Chinese goods, we expected trade war to be over. Nevertheless, there seems to be no definitive solution to trade war in the coming months or until 2020 as per experts. Trump will definitely make sure trade war with China is one of his political points to his 2020 presidential re-election campaign. Global growth will be hit if trade war further escalates in future impacting currencies throughout the world.