RBI has announced auctions of Tbills under MSS for Rs 1000 billion to suck out liquidity infused by fx purchases.
RBI could be buying USD to shore up fx reserves and keep the INR from appreciating too fast. INR is trading at over 18 months highs against the USD on the back of heavy capital flows. RBI buying USD will tend to weaken the INR in the short term.
Geopolitical risks continued to remain at the centre of global financial markets for the 3rd consecutive week with the U.S. dropping the largest non-nuclear bomb on ISIS in Afghanistan. U.S. military actions against Syria and North Korea along with worries over the French presidential elections have made market participants nervous and have driven up safe-haven demand for assets. Japanese Yen is trading at multi month high levels against the USD and the Euro. Japanese Yen appreciated by 2.26% against the USD and by 1.99% against the Euro last week. 10 Year UST yields dropped by 12 bps last week while gold prices rose by 1.66%.
However, USD that is usually in demand in uncertain times has not appreciated largely due to the fact that President Trump called for a weaker USD and low interest rates by the Fed. USD Index (DXY), which tracks the movement of the USD against six major currencies, fell by 0.66% on a week on week basis and is at a level of 100.51.
USD started the week on a low note despite remarks by the Fed Chair Janet Yellen that suggested rate hikes were likely sooner rather than later. Janet Yellen said on Monday that the Federal Reserve’s plans to raise U.S. interest rates gradually are aimed at sustaining full employment and near-2% inflation without letting the economy overheat. She also reiterated that the U.S. economy is expected to continue to grow at a moderate pace.
North Korean state media threatened a nuclear attack on the United States at any sign of U.S. aggression on Tuesday, while U.S. President Donald Trump tweeted that Pyongyang was “looking for trouble” and the United States would “solve the problem” with or without China’s help.
Trump’s administration also accused Russia of trying to shield Syria’s government from blame for a deadly gas attack, as Secretary of State Rex Tillerson condemed Moscow support for President Bashar al-Assad.
In the French elections, a far-left veteran Jean-Luc Melenchon who had been written off has now surged into the top four ahead of the May presidential elections, adding to the uncertainty over the outcome.
USD further came under pressure on rising uncertainty over the Trump administration’s policies. President Trump said on Wednesday that he intends to repeal Obamacare before moving on to tax reforms. However, Trump and GOP house leaders failed to repeal and replace Obamacare last month, after a healthcare reform bill was pulled at the last minute, casting doubts on the president’s ability to deliver on other priorities, which includes tax reforms and infrastructure spending. President Donald Trump further told the Wall Street Journal on Wednesday that the USD “is getting too strong” and that he would prefer the Federal Reserve to keep interest rates low.
U.S. Department of Labour on Thursday reported that the number of individuals filing for initial jobless benefits in the week ended 8th April fell by 1,000 to 234,000 from previous week’s total of 235,000 against the expectations of a rise of 10,000 to 245,000.
U.S. producer price index fell 0.1% in the month of March against the expectations for a flat reading. Year-on-year producer prices increased 2.3% last month, below expectations for a 2.4% gain.
The University of Michigan reported that its consumer sentiment index climbed to 98.0 in the month of April against the expectations of a fall to 96.5.
Asian currencies were largely up last week against the USD. Australian Dollar appreciated by 1.05%, New Zealand Dollar appreciated by 0.82%, Japanese Yen appreciated by 2.26% against the USD and appreciated by 1.99% against the Euro. South Korean Won depreciated by 0.48%, Philippines Peso appreciated by 0.69%, Indonesian Rupiah appreciated by 0.35%, Indian Rupee depreciated by 0.2% against the USD and by 0.3% against the Euro, Chinese Yuan appreciated by 0.22%, Malaysian Ringgit appreciated by 0.64% and Thai Baht appreciated by 0.60%.