The US dollar gained 2.5% versus the Indian Rupee across 2019 as investors digested 3 rate cuts by the Federal Reserve, 5 rate cuts by the Reserve Bank of India, a significant slowdown in the Indian economy and US — China trade developments.
The US dollar climbed versus the Indian Rupee in the first quarter of the year reaching a high of 71.920 before trending lower through the second and third quarters of the year. The pair hit a yearly low of 68.123 in July before rebounding higher. The US dollar Indian Rupee rate then jumped 6% in just 6 weeks hitting a high of 72.424 in early September. The pair has trended marginally lower across the last few months of 2019, closing the year out comfortably above 71.00.
Fed & Trade Drive Dollar
President Trump complained about the strength of the US dollar across the year. The dollar advanced in 2019 despite the Federal Reserve cutting interest rates three times across the summer months in what they called “insurance cuts”, as concerns over the health of the US economy peaked.
The US — China trade dispute was the central fear for financial markets for most of 2019. The ongoing US — China trade war dampened global demand causing the US manufacturing sector to slump. Fears of contagion across the US economy were unfounded and the US labour market remained solid with a resilient consumer sector. Consequently, the Federal Reserve pressed pause indefinitely on any further rate cuts at its latest monetary policy meeting of 2019. The move served to quell concerns over the health of the US economy. However, the Fed also said that it would need to see a significant and persistent increase in inflation in order to consider hiking interest rates.
The dollar has been trending marginally lower over the last few months of this year as the easing of US — China trade tensions has increased flows out of the safe haven greenback. With the US and China set to sign a phase one trade deal in early 2020, risk appetite could continue improving and pressure could remain on the safe haven dollar.
Indian Economic Slowdown Weighs On Rupee
The Indian Rupee ended the year in the red versus the US dollar for the second consecutive year. Concerns over a slowdown in economic growth in India weighed on the rupee this year. Declining consumption and investment, combined with falling tax revenue have dragged on economic growth in a country which had one of the fastest growing economies just a year ago.
The International Monetary Fund (IMF) slashed India’s GDP forecast for 2019 by a full percentage point to 6.1% in 2019. The Reserve Bank of India (RBI) cut interest rates 5 times across the year, bringing the interest rate level to a nine-year low in a bid to prop up economic growth. Lower interest rates often drag on the value of a currency.
The RBI didn’t cut interest rates in its December monetary policy meeting. However, the central bank will almost certainly continue with its accommodative stance in 2020 as economic growth struggles at six year lows. The dovish bias by the RBI could keep the Indian Rupee under pressure.