USD/INR: “Totally done” Trade Deal to Boost EM Currencies

Indian Rupee alongside other merging market currencies are expected to be the primary beneficiary of the “phase-one” US — China trade deal. The Rupee closed higher against the greenback for the second consecutive week amid easing trade tensions. On the currency market, the value of Rupee appreciated by 52 paise at the end of the previous week settling at 70.64 against the US dollar.

During the early Asia trading hours, the USD/INR exchange rate was seen quoted within a range of 70.64 — 70.95, as more of the previous euphoric rally has started to fade away.

The dollar index crashed to a 5-months low amid the pressure coming from the Pound euphoric rally. However, on Friday, the greenback recovered some of its losses as risk appetite returns on US-China trade deal.

U.S. Trade Representative Robert Lighthizer told reporters on Sunday that the world’s two largest economies have reached a deal that is “totally done.” The partial deal is most likely to be signed during the first week of January 2020.

Indian Central Bank (RBI) early in the month defied expectations for more easing and kept its benchmark interest rate unchanged at 5.15%. Asia’s third-largest economy while it has seen its GDP forecast slashed, this didn’t account for the positive developments in the US — China trade talks. The easing trade tensions can actually help India’s economy.

Elsewhere, in Asia, emerging market currency rally can continue going into the New Year as market themes like the UK election and trade war tensions have found a resolution. The US Federal Reserve pausing its easing efforts has also boosted investor’s risk appetite. The only thing that can stop EM currencies rally is the low liquidity associated with the holiday season.

The domestic benchmark equity index NIFTY 50 traded on a positive note settled at 12086, near the 2019 highs. During early Asia trading hours NIFTY 50 was seen gaping higher at 12134. Year-to-date the Indian stock market has gained 11.27%, benefiting from foreign investment inflow.

The Indian 10-year government bond yield was seen quoted at 6.79 versus 6.78 previous closing prices.

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