The INR closed at levels last seen in August 2013 and is just around 2% off record lows of Rs 68.80 against the USD, which it touched during that month. The INR is being dragged down on rising global risk aversion arising out of economic uncertaintly. The INR is also being pressured by lack of reforms by the government and on expectations that the government will not stick to its fiscal deficit target in its budget for next fiscal year. Continued risk aversion will drive INR down to record lows against the USD in the coming weeks.
Global currencies were under pressure last week amid rising global economic uncertainty, which continued to boost the demand for safe heaven assets. Global currencies stayed under pressure despite economic sentiment improving slightly during the week after China data released on Wednesday showed that the country’s exports fell by 1.4% in the month of December against the expectation of a decline of 8%, while imports declined by 7.6% against the expectation of a decline of 11.5%. The trade balance came in at USD 60.09 billion which was wider than the expectation of USD 53 billion surplus.
The sharp decline in crude oil prices in the last week brought currencies of commodity driven economies like Russian Ruble, Brazilian Real, Australian Dollar and New Zealand Dollar under heavy selling pressure. On weekly basis Brent crude oil price decline by 12.78% from 34.34 USD/bbl to 29.95 USD/bbl touching its 12-year low level on Tuesday. Amid recent rout in oil prices BP announced that it will cut 4,000 jobs across its exploration and production business globally. Russian Ruble and Brazilian Real depreciated by 3.81% and 0.6% respectively against the USD.
USD started the week on a high note on Monday as strong monthly jobs report released previous to last week continued to give strong support to the USD. Data showed that the U.S. economy added 292,000 jobs in the month of December, against the expectations of 200,000, followed by 252,000 job additions in November.
USD Index (DXY), which tracks the movement of the USD against six major currencies, gained by 0.42% on weekly basis and closed at levels of 98.96. USD during the week was slightly volatile as U.S. economy released mixed economic data.
U.S. Department of Labour on Thursday reported that number of individuals filing for initial jobless benefits in the week ended 8th January rose by 7,000 to 284,000 from the previous week’s total of 277,000 against the expectation of a decline of 2,000 to 275,000.
U.S. Census Bureau on Friday reported that retail sales declined by 0.1% in the month of December, against the expectations of a rise of 0.1% and followed by a rise of 0.4% in November. U.S. Core retail sales declined by 0.1% in the month of December, against the expectation of a rise of 0.2%.
A separate report showed that the U.S. producer price index declined by 0.2% in the month of December, which was in line with the expectations. Core PPI rose by 0.1% in the month of December, which was again in line with the expectations.
Federal Reserve of New York on Friday said that its Empire State manufacturing index deteriorated to negative 19.37 in the January from minus 6.21 in December against the expectation of negative 4.
Euro depreciated by 0.05% against the USD after the minutes of the European Central Bank’s December meeting showed that some policymakers called for deeper interest rate cuts. The minutes further showed that the possibility was raised for expanding monthly asset purchases under the central bank’s quantitative easing program from the current level of 60 billion Euro.
Asian currencies were largely lower against the USD last week on demand for safe haven currencies. Australian Dollar depreciated by 1.28%, New Zealand Dollar depreciated by 1.25%, Japanese Yen appreciated by 0.24%, South Korean Won depreciated by 1.26%, Philippines Peso depreciated by 1.21%, Indonesian Rupiah appreciated by 0.09%, Indian Rupee depreciated by 1.43% against USD and depreciated by 1.25% against Euro, Chinese Yuan appreciated by 0.15%, Malaysian Ringgit depreciated by 0.11% and Thai Baht depreciated by 0.08%.
Indonesia Rupiah appreciated against the USD last week after Bank Indonesia (BI) announced 25 bps cut in its benchmark interest rate to 7.25%, which helped to improve the sentiment in the country after multiple explosions and a gunfight in central Jakarta, the biggest attack in the capital since 2009.