The INR closed last week at levels last seen in September 2013. The INR fell 0.84% to close at levels of Rs 66.73 to the USD and has come under pressure on the back of broad USD strength. The Fed is widely expected to raise rates in its mid December 2015 meeting and currency traders are betting on the USD strengthening.
The question is, how much will the INR depreciate and will it go below its all time low levels of Rs 68.80, which is just 3% away. The INR can well go below its record lows given that the USD is showing sustained strength. USD is expected to trend higher until the Fed meet and post the Fed meet will see profit taking, unless the guidance by the Fed is of sustained and faster pace of rate hikes.
Expectations of growing interest rate differentials between the USD and Euro pushed up the USD last week. USD index closed the week above the 100 level. USD Index (DXY), which tracks the movement of the USD against six major currencies, rose by 0.46% on weekly basis and closed at levels of 100.02, which is the highest level since March 2015.
USD started the week on a higher note despite the release of disappointing U.S. housing sector data on Monday, as the heightened expectations for a December rate hike continued to give support to USD.
The interest rate hike expectation got a boost after New York Fed President William Dudley said that there is a “strong case” for Fed to hike rates in its next meeting in December as long as economic data continued to remain solid.
U.S. National Association of Realtors on Monday reported that existing home sales declined by 3.4% to 5.36 million units in the month of October against the expectation of 2.3% decline to 5.40 million units followed by 5.55 million units in September.
U.S. Commerce Department on Tuesday reported that gross domestic product grew at an annual rate of 2.1% in the third quarter, which was in-line with expectations. Preliminary data initially pegged U.S. growth at 1.5% in the third quarter. The U.S. economy grew by 3.9% in the second quarter.
U.S. Department of Labour on Wednesday reported that number of individuals filing for initial jobless benefits in the week ended 21st November declined by 12,000 to 260,000 from the previous week’s total of 272,000 against the expectation of decline of 2,000 to 270,000.
U.S. Commerce Department on Wednesday reported that durable goods orders rose by 3.0% in the month of October against the expectation of a rise of 1.5%. Core durable goods orders rose by 0.5% in the month of October against the expectation of a rise of 0.3%.
Data also showed that U.S. personal spending rose by 0.1% in the month of October against the expectations of a rise of 0.3%, it rose by 0.1% in September.
U.S. Commerce Department on Wednesday reported that new home sales rose by 10.7% to 495,000 units in the month of October against the expectation of a rise of 6.0% to 500,000 units.
Euro depreciated by 0.5% against the USD last week. Euro came under heavy selling pressure after ECB president Mario Draghi on previous to last Friday gave his strongest indication that the bank will approve further easing measures in December, most likely by moving its deposit rate deeper into negative territory.
Geo-political tensions erupting in the region added further pressure to the Euro. Turkey on Tuesday shot down a Russian warplane on the Syrian border. Ankara claimed the SU-24 warplane had entered Turkish airspace, but Moscow has rejected those claims. Responding to the incident, Russian President Vladimir Putin called the downing “a stab in the back,” and warned it would have serious consequences for the Russian-Turkish relationship. Russian Ruble depreciated by 2.54% against USD last week. Slump is oil prices is also adding pressure to the Ruble.
Brazilian Real depreciated most amongst the major currencies after the arrest of a ruling-party senator last week, which raised worries over President Dilma Rousseff’s economic agenda. Brazilian real depreciated by 3.66% against USD last week.
The arrest of the senator has delayed the voting on a new fiscal target that would allow the government to end 2015 with a deficit of USD 31.7 billion before interest payments. If Congress doesn’t pass the measure, the government risks breaching budget rules.
Asian currencies were broadly down against USD last week. Australian Dollar depreciated by 0.64%, New Zealand Dollar depreciated by 0.47%, Japanese Yen appreciated by 0.01%, South Korean Won appreciated by 0.11%, Philippines Peso depreciated by 0.27%, Indonesian Rupiah depreciated by 1.29%, Indian Rupee depreciated by 0.84% against USD and by 0.53% against Euro, Chinese Yuan depreciated by 0.15%, Malaysian Ringgit appreciated by 0.75% and Thai Baht depreciated by 0.44%.