Rupee has benefitted from RBI’s interest rate hike and sharp decline in crude oil price. RBI raised interest rate by 0.25% to 6.5% to rein in inflation and stem investor outflows. Brent crude slumped below $73 per barrel on unexpected rise in US crude oil stocks and concerns about US-China trade conflict. However, weighing on rupee is Fed’s monetary tightening stance and
weakness across equity market and downbeat monsoon outlook. Fed kept interest rate unchanged at 1.75-2% yesterday but reiterated optimism about US economy keeping expectations high of two more rate hikes this year. Global equity markets are under pressure due to concerns about China and US threat to propose 25% import duty on $200 billion Chinese goods. Private weather forecaster Skymet revised its monsoon rain forecast from normal to below normal on
Wednesday. Skymet had in April predicted that rainfall in the June-to-September monsoon season will be 100% of the Long Period Average but revised it downward to 92%. Deficient rains could keep inflation high. Rupee has opened on a firm note but the gains may not sustain given weaker risk sentiment. USDINR may trade in a range of 68.2-68.55 and bias may be on the upside.
FOMC decision- The US dollar index trades little changed near 94.7 levels amid little market reaction to Fed decision. The US Federal Reserve concluded its two day meeting and as expected kept interest rate unchanged at 1.75-2%. Fed reiterated optimism about US economy keeping expectations high that there may be two more rate hikes this year. Fed has remained unfazed despite flattening yield curve, trade war worries and Trump’s concerns about higher interest rates.
Market players are now seeing a 91% chance of a rate rise in September and an over 60% chance of fourth hike in December. Fed’s decision is supportive for US dollar but we saw little reaction with focus on Bank of England decision today and US non-farm payrolls tomorrow.
Trade war worries- Asian equity markets are under pressure amid increasing trade war worries. As per reports, President Trump asked the US Trade Representative to consider increasing proposed levies on $200 billion in imports to 25% from