India’s foreign exchange reserves rose to USD 369.95 billion as of 31st March 2017, marking an increase of USD 10.20 billion since April 2016. The reserves was at USD 359.76 as of 1st April 2016, as per RBI data. The rise is significant in the context that four major events in fiscal 2016-17 could have dented the country’s forex reserves — Brexit, US Elections, Demonetisation and Fed Rate Hikes.
However, BJP’s massive win in the Uttar Pradesh elections, the result of which was declared on 11th March, fuelled a massive stock market rally driven by foreign investors along with surge in inflows into the debt market. Indian rupee is trading at 20-months high of Rs 64.28, appreciating by 0.89% against USD last week, recording its seventh-straight week gain. INR will continue to see strength on global capital flows as India’s growth and macros stand out in a world where large economies are showing signs of improvement. Economies from US to Eurozone and China are showing signs of strength and this will push up appetite for risk assets. The Fed too is gradually raising rates, which is calming markets.
USD was higher last week despite the release of soft U.S. economic data. Geopolitical risks in the form of US air strikes on Syria and China–U.S. summit were the main drivers for USD last week. The China–U.S. summit ended the best way possible with no shots fired from either side. Instead, President Trump said, “tremendous progress” was made and declared that the U.S. relationship with China as “outstanding”. China, President Xi Jinping told Trump, “We have a thousand reasons to get China–US relations right and not one reason to spoil the China–US relationship”.
Further, Fed in its March meeting minutes suggested that the Fed can go in for downsizing its USD 4.5 trillion balance sheet, which the markets took as a sign that interest rates will not rise faster than expected. US treasury yields fell despite strong private employment numbers for March.. USD Index (DXY), which tracks the movement of the USD against six major currencies, rose by 0.69% on a week on week basis and is at a level of 101.18.
New York Fed President William Dudley, said on Monday that the central bank could begin trimming its bond portfolio this year – earlier than many economists expected – but also said that it was in no rush to tighten monetary policy. St. Louis Fed President James Bullard and Minneapolis Fed President Neel Kashkari also said that they expect rate increases this year, but both were cautious about the U.S. economy.
U.S. Construction spending grew 0.8% to USD 1.19 trillion, the highest level since April 2006. Institute for Supply Management’s manufacturing index, was at 57.2 in the month of March, notching its highest reading since May 2011.
U.S. private employers added 263,000 jobs in the month of March, more than the additions in February and well above expectations.
U.S. Department of Labour on Thursday reported that the number of individuals filing for initial jobless benefits in the week ended 1st April fell by 25,000 to 234,000 from previous week’s total of 259,000 against the expectations of a fall of 9,000 to 250,000.
U.S. non-farm payrolls increased by 98,000 jobs in the month of March, which was far short of the expectation of increase of 180,000 jobs. The unemployment rate declined to 4.5% from 4.7% in February. Average hourly earnings in the U.S. fell to 0.2%, from 0.3% in the preceding month against the expectation of average hourly earnings to remain unchanged at 0.2%.
Asian currencies were mixed last week against the USD. Australian Dollar depreciated by 1.83%, New Zealand Dollar depreciated by 0.59%, Japanese Yen appreciated by 0.74% against the USD and appreciated by 1.61% against the Euro. South Korean Won depreciated by 1.41%, Philippines Peso appreciated by 0.63%, Indonesian Rupiah appreciated by 0.01%, Indian Rupee appreciated by 0.89% against the USD and by 1.42% against the Euro, Chinese Yuan depreciated by 0.18%, Malaysian Ringgit depreciated by 0.21% and Thai Baht depreciated by 0.76%.