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| Edited By: Bhaskar Panda |Source: DNA |Updated: Jan 28, 2019, 05:50 AM IST
The first few weeks of the New Year, 2019 has proved to be as volatile as it was in the last few months of the Year 2018. Date change hasn’t brought in much relief as far as markets are concerned. The niggling issues that caused much of volatility, especially in the last quarter of 2018, have more or less spilled over into this year. Hence, it makes eminent sense to go over some of those issues that will determine the course for the next few weeks/months.
In the last quarter of 2018 global crude prices fell dramatically. To give an example, the Brent crude prices tumbled 42.44% in a matter of three months. While all of us believed that such fall can’t continue for very long and was due for correction, the turnaround this month has also been quite swift, though cannot be compared with the magnitude of the fall.
Consequentially, nations that are dependent on import of crude and also run either current account deficit or negative balance of payment would have to take the brunt of crude price rally. To add to this conundrum, global growth projections are not looking as rosy as were made out to be. Global growth engines such as China, US and Europe are displaying weakness as far as growth is concerned. This fact has been acknowledged by various important central banks including US Fed, ECB and Bank of China.
The latest indications from the Fed governor have already put doubts in the minds of investors about the interest rate trajectory in US. Meanwhile, bigger economies of Europe are also displaying signs of deceleration in growth. Latest numbers from Germany has not been encouraging at all.
Indian forex markets have taken global cues rather than local ones to throw more rupee depreciation against the dollar.
The rupee lost value not only because global oil prices rallied this month, but also got shivers from weak Chinese data and weak yuan. This month, USD-INR rallied from a low of 69.2300 to touch a high around 71.4000 (INR losing 3.13% against USD). Now onwards, the USD-INR pair will have to contend with resistance at 71.1500 (55 DMA and Fibo at 71.2300/71.8500). It is difficult to assume that USD-INR would further rally from here, despite better than expected international trade data. Also, both CPI and WPI numbers came in at multi-month low. Hence, I am expecting the current rally in USD-INR to weaken and am expecting a little bit of rupee appreciation in the coming days/weeks.
I am expecting a range between 70.3000 and 71.8000 to sustain for some time. In the Indian bond markets, yields have rallied on the basis of remarks on overall deficit. It’s a little overdone, and I am expecting consolidation here.
The writer is senior regional head - treasury advisory group, HDFC Bank
