USD rallied last week and is expected to strengthen further on strong February monthly US job report, which is indicating a healthy and continuous recovery in US labour markets and is making a strong case for Federal Reserve to hike rates sooner than later. (Read our analysis to know “What effect will a Fed rate hike have on INR, INR bonds, Sensex & Nifty?”)
ECB meet and strong monthly US jobs data were the major drivers for the USD rally. The USD Index (DXY), which tracks the movement of the USD against six currencies was up by 2.54% in the last week and on yearly basis the index is up by 22.66%.
Euro depreciated for the third consecutive week last week, falling by 3.14% against USD to trade at its lowest level in almost 11 years. The Euro came under pressure after ECB President Mario Draghi confirmed on Thursday that the Central Bank will begin its bond purchase program of Eurozone government bonds, covered bonds and asset backed securities on 9th March.
The combined asset purchases will amount to Euro 60 billion per month and is expected to run until September 2016 or until the ECB sees that inflation is on a sustained path to its target.
The Labour Department report showed that U.S. economy added 295,000 jobs in February, beating expectations for an increase of 240,000. January’s figure was revised to a 239,000 gain from a previously estimated 257,000 rise. Report also showed that the U.S. unemployment rate fell to 5.5% in February from 5.7% in January, against the expectation of 5.6%. Unemployment rate is at seven year lows.
Separate report showed that U.S. trade deficit narrowed to USD 41.80 billion in January from USD 45.60 billion in December, which was revised from the previously estimated value of USD 46.60 billion. Analysts had expected the trade deficit to narrow to USD 41.70 billion in January.
US Jobless claims for the week ending 28th February rose by 7,000 to 320,000 from the previous week’s revised total of 313,000, against expectations of 18,000 decline to 295,000.
Brazilian Real depreciated by 7.27% against the USD last week and on yearly basis it has depreciated by 24.15%. Real continued to be under pressure as country’s political and economic situation is growing worse. Brazil Central Bnak hiked rates last week to lower inflation expectations. Brazil’s economy is expected to shrink this year and may have contracted last year as well while the trade deficit is ballooning.
On Monday, trade ministry said the country had a trade deficit of USD 2.8 billion in February, the worst result for the month since 1980. The 12-month result is now a deficit of USD 3.8 billion, compared to USD 1.4 billion surplus seen in the same period last year
Adding to the country’s trouble is the ongoing investigation on Petrobras which is the world’s sixth-biggest energy company by assets and is the backbone of Brazil economy. Brazil’s Supreme Court on Friday has revealed the names of the top politicians and company officials who received kickbacks in order to give lucrative projects to private firms.
Russian Ruble appreciated for the fifth consecutive week and in the last week Ruble appreciated by 2.19% against USD. Ruble rallied as oil prices stabilized and on Ukraine ceasefire. (Crude Oil (Brent) is at 62.58 USD/bbl).
Asian currencies were under pressure due to building up of policy divergence as ECB is embarking on its Euro 60 billion monthly bond purchase program starting off on 9th March and on the other hand Federal Reserve is expected to hike rates sooner than anticipated on the back of strong recovery coming in from US labour markets. Australian Dollar declined by 1.18%, Japanese Yen declined by 0.99%, South Korean Won declined by 0.07%, Indonesia Rupiah declined by 0.34% and Indian Rupee declined by 0.53% and Thai Baht declined by 0.68% whereas Philippines Peso rose by 0.02%, Chinese Yuan rose by 0.1%. The INR rose by 1.63% against the Euro.