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By
Gaurang SomaiyaThe rupee has fallen to fresh record lows after a surge in global oil prices and on expectations that it could start hurting India’s import bill.
The slide was triggered chiefly by July’s trade deficit that widened to $15.8 billion on the back of pricier oil.
Last week, volatility in the dollar was curbed, but a mixed set of economic numbers from the US kept the greenback under pressure.
On the domestic front, market participants have been cautious and weakness in the rupee has raised expectations that the RBI could consider raising interest rates twice this year, once in October and another in December.
This week, inflation and industrial production numbers are taking focus.
But importantly, investors are digesting the inflation print to firm up a view on the currency.
As a whole, we expect the rupee to remain under pressure against the dollar.
The euro gained marginally against the dollar after German and Euro zone manufacturing PMI numbers for August came in better than estimates.
But a major trigger for the currency came in after non-farm payroll data for August showed that the economy added 2,01,000 jobs in August compared with 1,47,000 in the previous month.
On the other hand, average hourly earnings rose marginally by 0.4 per cent in August against a growth of 0.2 per cent in the previous month, keeping hopes alive for two more US rate hikes this year.
This week, from the euro zone, market participants will be keeping an eye on the ECB policy statement.
Any hawkish comments from the governor could support the euro at lower levels.
Japanese yen rose in the first half of the week, but gains were limited following uncertainty surrounding the announcement of the US imposing import tariff on Chinese goods worth $200 billion.
Safe haven buying was also seen ahead of the key negotiations between the US and Canada on the NAFTA deal.
But gains for the currency were limited after the US President hinted at taking trade war to Japan.
Discussions between both the countries have begun and the President expects that a deal should get through.
Trump, who is already challenging China, Mexico, Canada and the European Union on trade issues, has expressed displeasure about his country’s large trade deficit with Japan, but had not asked Tokyo to take specific steps to address the imbalance.
Japanese yen overall is consolidating in the range of 110.50 and 111.50 and break above this level could give a clear trend to the currency.
(The writer is Currency Analyst, MOSL)
