In the recent days, global risk appetite weakened on developments in the UK-EU Brexit saga, EU-Italian Budget fracas, G-20 Summit, US-China trade spat, oil prices and the US yields.
The US dollar slipped on a Fed member's comments about slowing global growth, manifesting in part of the US Treasury yield curve inverts. A 90-day truce to the US-China trade war for talks agreed at the G-20 summit lowered the tension. However, triumphant tweets by the US president Donald Trump and the arrest in Canada at the behest of the US of the global CFO of Huawei Technologies, a Chinese technology major, on suspicions of violating sanctions on Iran could undo the prospects of negotiations.
The euro stayed around $1.14 with Brexit negotiations concluded but not the EU-Italy budget stand-off. The European Central Bank (ECB) president Mario Draghi's acknowledgement of slowing growth (due to trade war issues) pushed expectations of ECB rate hikes deeper into 2019.
Pound sterling stretched toward $1.32, as UK-EU agreed on the draft Brexit Withdrawal Bill and the Future Relationship Principles. However, top-level UK ministerial resignations, a still-born Tory leadership challenge and its key coalition ally, DUP's refusal to support this deal in the UK Parliament, pulled the pound to below U$1.27. The UK government was then outvoted into giving more power to the UK Parliament in case the current Brexit deal is defeated on December 11. It was also found to be in contempt of Parliament for failing to publish its Attorney-General's legal advice on the Brexit deal, that UK could be stuck in the EU Customs Area in perpetuity. A senior EU legal advisor's opinion, that the UK could unilaterally withdraw its Brexit notice ahead of the March 29 exit date, soothed market nervousness.
The Yen remained in the 112-114/$ range as safe-haven interest post the Huawei arrests and lowered expectations of future Fed rate hikes, clashed with news of additional fiscal stimulus to offset the scheduled October 2019 sales tax increase.
Brent crude prices, from highs beyond $86p/b, collapsed to below $58p/b, through November. Then it rebounded on the Russia-Saudi agreement to extend their co-operation into 2019 and on the surprise 8.7% output cut by Alberta, a Canadian province. Disagreements about the extent and tenure of production cuts are delaying the Opec+ decision and pressuring oil bulls.
The Indian rupee gained by over 6.6% to 69.56/$ from an all-time high of 74.4850/$, following a 25% plus a collapse in the price of global oil prices and a rebound in domestic asset markets. A mix of measures by the Reserve Bank of India (RBI) or government to encourage foreign direct investment (FDI) or foreign institutional investors (FII) inflows and reduce long-term hedging by PSUs helped. The RBI kept key interest-rates and its policy stance unchanged while revising inflation forecasts lower, but with upside risk. They also announced a gradual reduction in SLR and promised to conduct ample open market operations (OMO) to provide necessary liquidity.
In the weeks to come, we expect the rupee to trade in the 69.75-71.25/$ range while negotiating the results of the five state elections, contagion and geopolitical worries.
ON THE WATCH
- In the weeks to come, we expect the rupee to trade in the 69.75-71.25/$ range
- The Indian rupee gained by over 6.6% to 69.56/$ from an all-time high of 74.4850/$ last week
The writer is president- group treasury and retail broking, Kotak Mahindra Bank
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Pound sterling stretched toward $1.32, as UK-EU agreed on the draft Brexit Withdrawal Bill and the Future Relationship Principles. However, top-level UK ministerial resignations, a still-born Tory leadership challenge and its key coalition ally, DUP's refusal to support this deal in the UK Parliament, pulled the pound to below U$1.27. The UK government was then outvoted into giving more power to the UK Parliament in case the current Brexit deal is defeated on December 11. It was also found to be in contempt of Parliament for failing to publish its Attorney-General's legal advice on the Brexit deal, that UK could be stuck in the EU Customs Area in perpetuity. A senior EU legal advisor's opinion, that the UK could unilaterally withdraw its Brexit notice ahead of the March 29 exit date, soothed market nervousness.
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