• USD/INR likely to breach 69 and reach 70 psychological level - ScotiaBank

    Source: FxWire Pro - Commentary / 23 Jul 2018 10:18:46   America/New_York

    The sharp depreciation of yuan in the midst of an escalating U.S.-China trade dispute has sparked risk aversion throughout regional markets and bolstered its correlation with other EM Asian currencies including the Indian rupee. Developments in the U.S.-China trade war would be closely monitored as the Office of the USTR would decide whether to put 25 percent tariffs on another USD 16 billion in Chinese goods by the end of July, noted Scotiabank in a research report.

    If so, it would certainly dampen regional confidence and be a drag on local currencies further. Moreover, U.S. President Donald Trump threatened to put tariffs on all USD 500 billion of imports from China last week. Also, Trump said in a tweet that China, the EU and others are manipulating currencies and putting the U.S. at a disadvantage. S&P Global Ratings stated last week that trade issues and increased US interest rate might create outward capital flow pressure for India, but risks this year are more moderate as compared with 2013.

    Bouncing oil prices are expected to continue imposing pressure on India’s ongoing trade deficit and current account deficit, stated Scotiabank. Oil prices are likely to stay elevated and resilient on increasing demand in the coming months, in spite of the agreement reached by OPEC+ to increase oil output. According to a Reuters report, Saudi Arabia’s OPEC governor Adeeb Al-Aama stated that the kingdom’s exports are expected to fall next month and inventories might be squeezed in the third quarter. It is aimed at elevating fears about oversupply, according to Scotiabank.

    “While a broad dollar weakness due to US President Trump’s remarks could bring a temporary relief, we remain bearish on the INR and expect USD/INR to breach the 69 mark again and to reach the 70 psychological level before long”, added Scotiabank.

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