INR appreciated by 0.66% against the USD in the last week. The gain was largely attributed to weak U.S. economic data, which has raised concerns over U.S. economic recovery and expectations for a delayed interest rate hike by the Fed.
INR relative strength is hurting exports with data released on Friday showing India’ exports declined for the fifth straight month in April from a year earlier. Exports declined by 14%. Declining export growth is going to be a key challenge for the country’s growth prospects as global demand is expected to remain subdued on the back of weak global economic growth.
Will the RBI resort to currency devaluation by lowering rates in its 2nd June 2015 policy review? Given global bond yield volatility that saw sovereign bond yields rise sharply over the last one month from the US to the Eurozone, it remains to be seen if RBI will lower rates to devalue the INR.
USD stayed down last week and touched its multi month low levels after the release of disappointing U.S. economic data. USD Index (DXY), which tracks the movement of the USD against six currencies, posted a decline of 1.75% last week.
U.S. retail sales (includes automobiles) was flat last month against expectations of 0.2% rise. Core retail sales, which excludes automobiles, rose by 0.1% in April against expectations of 0.5% rise.
U.S. producer prices fell by 0.4% in the month of April against expectations of 0.2% rise, it rose by 0.2% in March. Core producer prices, which excludes food, energy and trade fell by 0.2% in April against expectations of 0.1% gain after 0.2% rise in March.
U.S. Department of Labour on Thursday reported that initial jobless claims fell unexpectedly in the week ending 9th May by 1,000 to 264,000 from the previous week’s total of 265,000 against expectations of rise of 10,000 to 275,000.
University of Michigan on Friday reported that consumer sentiment index fell to a seven-month low of 88.6 in May from 95.9 in April against expectations of decline to 96.0. Report also showed that inflation expectations for the next 12 months ticked up to 2.9% in May from 2.6% in April.
U.S. industrial production fell by 0.3% in April, against expectations of 0.1% rise while U.S. manufacturing production was flat in the last month against expectations of an increase of 0.2%.
Euro appreciated by 2.25% in the last week against the USD. The gain came after Greece repaid a Euro 770 million loan instalment to the International Monetary Fund, which has eased concerns that the country was on the verge of default.
Brazilian Real depreciated by 0.74% against the USD as President Dilma Rousseff faced a 1st June deadline to push budget savings through the Senate. Real during the week came under pressure after the President suffered a setback as the lower house voted to raise spending on pensions for several years from now.
Russian Ruble appreciated by 2.79% against the USD. Russian Central Bank on Thursday gave market the signal that the currency had become too strong by announcing that it would start buying USD 100 million to USD 200 million per day in order to grow reserves. After the announcement, Ruble fell by around 2.7%. Surging crude oil prices continued to give support to the currency. Brent Crude oil in the last week rose by 2.71% from 65.39 USD/bbl to 66.81 USD/bbl.
Asian currencies were up broadly against the USD last week. Australian Dollar rose by 1.29%, Japanese Yen rose by 0.43%, South Korean Won rose by 0.25%, Philippines Peso rose by 0.43%, Indonesia Rupiah rose by 0.28%, Thai Baht rose by 2.81% and Chinese Yuan rose by 0.05%.
Indian Rupee rose by 0.66% against the USD and depreciated by 1.05% against the Euro.