Asian currencies this week also were under pressure due to building up of policy divergence as US labour market is on a strong recovery path making a very strong case for the Fed to hike rates sooner than expected. Rate cuts by South Korea, Thailand, China and India are fuelling weakness in emerging currencies.
Australian Dollar declined by 1.02%, Japanese Yen declined by 0.47%, South Korean Won declined by 2.65%, Philippines Peso declined by 0.46%, Indonesian Rupiah declined by 1.73% and Indian Rupee declined by 1.26% and Thai Baht declined by 1.06% whereas Chinese Yuan rose by 0.07%. The INR rose by 2.81% against the Euro.
USD rallied this week on strong expectations on Fed rate hike, which is due to the strong recovery shown by the US labour markets. Monthly labour report released earlier to last week shows that US economy has added 295,000 jobs in February, beating the expectations with a wide margin and was well complimented by last week’s initial jobless claim data, which shows that number of people filing new claims for unemployment benefits fell by 36,000 to 289,000, indicating that the recovery in the US labour market is continuing to strengthen.
USD Index (DXY), which tracks the movement of the USD against six currencies was up by 2.54% in the last week despite downbeat US economy data as USD remained broadly supported by the latest U.S. jobs report. The index on yearly basis is up by 26.29%.
US Commerce Department reported that retail sales fell by 0.6% in February, the third consecutive monthly decline against the expectation of 0.3% rise. US Department of Labour reported that producer prices declined by 0.5% last month against the expectations of 0.3% rise, after a 0.8% decline in January. Core producer prices which exclude food, energy and trade, also declined by 0.5% in February against the expectations of a 0.1% rise.
University of Michigan shows that its consumer sentiment index fell to 91.2 this month from 95.4 in February, disappointing expectations for a rise to 95.5. The report also shows that its inflation expectations for the next 12 months rose to 3.0% in March from 2.8% last month.
Euro depreciated for the fourth consecutive week, falling by 3.21% against the USD to trade at its multi-year low levels. On Thursday last week the Euro touched 12 year low levels. The Euro came under pressure after ECB officially started off its monthly quantitative easing program on 9th March to purchase Eurozone government bonds, covered bonds and asset backed securities
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.
Brazilian Real depreciated by 5.69% against the USD last week and on yearly basis it has depreciated by 27.76%. Real continued to be under pressure as country’s political and economic situation is growing worse and economists expect the economy to contract this year. The rising inflation and kickbacks-and-bribery scandal at state-controlled oil company Petrobras is adding to the current troubled situation.
On Thursday, Brazil’s Central Bank released the minutes of its most recent monetary policy committee meeting, at which it decided to raise its benchmark interest rate by 50 bps to 12.75%. The bank said inflation this year will be worse than previously thought, partly because of the weaker Real, but that the outlook for consumer price rises to slow next year had improved.
Russian Ruble depreciated in the last week by 2.90% against the USD due to Oil price decline and CBR rate cut. Oil price in the last week declined by around 13% putting pressure on countries economy as Russia relies on oil and gas for 50% of budget revenues. (Crude Oil (Brent) is at 54.67 USD/bbl). Central Bank of Russia (CBR) on Friday slashed rate by 100 bps to 14% from 15%.