The INR is set to gain on the back of expected FII flows into equites and bonds. Weak US job numbers is helping taking out bets of Fed rate hike this year while RBI rate cut of 50bps has added optimism to the economy.
USD weakened last week after the monthly job data disappointed and on fresh concerns over the Chinese economy. USD Index (DXY), which tracks the movement of the USD against six major currencies, weakened by 0.46% on weekly basis and closed at levels of 95.83.
Fed officials stand divided on the timing of the interest rate hike. New York Fed President William Dudley and San Francisco Fed head John Williams indicated support for a rate hike in 2015 in separate speeches on Monday but Chicago Fed President Charles Evans said rates should remain on hold until mid-2016. These statements came after Fed Chair Janet Yellen said previous to last week that the Fed is still on track for a rate hike before the year end.
However U.S. monthly jobs report released on Friday has dampened any expectation of a rate hike in October and lowered expectations of a rate hike in December.
USD started the week on a slightly low note after U.S. National Association of Realtors reported that U.S. pending home sales dropped unexpectedly last month. Data showed that U.S pending home sales declined by 1.4% in the month of August against the expectation of 0.1% rise, followed by 0.5% rise in the month of July.
U.S. Bureau of Economic Analysis on Monday reported that personal spending rose by 0.4% in the month of August against the expectation of 0.3% rise, followed by 0.4% rise in the month of July. Report also showed that personal income rose by 0.3% in the month of August against the expectation of 0.4% rise followed by 0.5% rise in the month of July.
On Tuesday, USD came under pressure on growing concerns over Chinese economy, which could continue to rattle the markets. Data showed that Chinese industrial profits declined by 8.8% in the month of August from a year earlier, the decline was the largest in four years.
USD on Wednesday rose sharply erasing previous two days decline after U.S. economy reported upbeat employment data. ADP on Wednesday reported that U.S. non-farm private employment rose by 200,000 in the month of September beating the expectations of an increase of 194,000, followed by 186,000 jobs in the month of August.
U.S. Department of Labour on Thursday reported that number of individuals filing for initial jobless benefits in the week ended 26th September increased by 10,000 to 277,000 from the previous week’s total of 267,000 and against expectations of an increase of 3,000.
Major disappointment for USD came on Friday after data showed that the U.S. economy created far less jobs than expected in the last month dampening optimism over the strength of the economy. U.S. Labour Department reported that the economy added 142,000 jobs in the month of September against the expectations of 203,000, followed by 136,000 addition in the month of August. The U.S. unemployment rate remained unchanged at 5.1% in the month of September, which was in-line with the expectations.
Euro appreciated by 0.19% against the USD last week. Euro strengthened on broad USD weakness, which came in the later part of the week, erasing all its early week’s decline. Euro came under pressure during the week on inflation concerns as Eurozone fell back into negative inflation in September adding to the pressure on the ECB to enlarge its stimulus program.
Data reported showed that Eurozone annual rate of inflation fell by 0.1% in the month of September against the expectation of a flat reading. Germany’s annual rate of inflation slowed to zero in September worse than the forecast of 0.1%. The German consumer price index declined by 0.2% in the month of August against the expectations of a decline of 0.1%.
Brazilian Real appreciated by 1.08% against USD last week ending its six-week losing streak. The gain came after President Dilma Rousseff reshuffled her cabinet as she tried to rebuild support in Congress and shore up the budget and president of the Brazil’s central bank making a comment that he is willing to use the country’s foreign reserves to defend the currency.
Asian currencies were up last week on broad USD weakness. Australian Dollar appreciated by 0.3%, New Zealand Dollar appreciated by 0.72%, Japanese Yen appreciated by 0.57%, South Korean Won appreciated by 1.19%, Philippines Peso appreciated by 0.07%, Indonesian Rupiah appreciated by 0.32%, Indian Rupee appreciated by 0.98% against USD and appreciated by 1.31% against Euro, Chinese Yuan appreciated by 0.29%. Whereas Malaysian Ringgit depreciated by 0.65% and Thai Baht depreciated by 0.69%.
Malaysian Ringgit last week touched 17 year low levels against the USD and is the Asia’s worst performing currency, declining by 26.2% on yearly basis. Malaysian Ringgit of-late came under heavy pressure due to slump in crude oil prices as the country is the region’s only major net oil exporter.
China’s deepening economic slowdown, a political scandal involving Prime Minister Datuk Seri Najib Razak and rising debt at state investment company 1Malaysia Development Bhd. have compounded the losses.
The country’s reserves have declined the most in the region in 2015 and Moody’s Investors Service said in August that while they are sufficient, their adequacy is the weakest in the region. Malaysia’s foreign-exchange reserves rose 0.6% to USD 95.3 billion in the two weeks of September, reserves declined to a six-year low of USD 94.5 billion in early August.