The US dollar is up against the Indian rupee on Tuesday morning with the ebbing and flowing fears over the coronavirus still dominating market sentiment.
Emerging market currencies are out of favour again on Tuesday with the dollar back on the front foot as an increasing number of agencies and companies warn about the detrimental effect of the outbreak.
USD/INR was higher by 20 pips (+0.28%) to 71.52 with a daily range of 71.34 to 71.56 as of 10am GMT. After falling on Monday by -0.28%, the currency pair held onto 71 support and as of today is back to flat on the week.
The rupee
There has been some attention paid to the action of the Reserve Bank of India since its February 7 policy meeting. Yesterday marked the end of the RBI’s first round of Long-term Refinancing Operations (LTROs).
As a reminder, LTROs are when a central bank offers low interest rate loans to domestic banks who will use sovereign debt as collateral. The loans must be paid back, typically in 3-months, 6-months or one year but sometimes three-years. The purpose is to increase bank liquidity which should encourage them to increase lending, although they will often buy higher yielding assets in order to improve profitability instead. The use of the sovereign debt as collateral tends to increase demand and thus push down government bond yields. All else being equal, the effect of the LTROs should be to weaken the domestic currency, in this case the rupee.
The dollar
The rupee is lower on Tuesday, having been caught up in a generally risk off tone that has seen stock markets turn lower while haven assets like gold and the US dollar are heading higher. Still the losses are within the price range of the past month, which has seen USD/INR fluctuate between 71.10 and 71.5.
On the US economic calendar we have the release of manufacturing and housing data. The NAHB Housing Market index is projected to remain steady at 75 while the NY Empire State Manufacturing index is forecast to rise a touch to 5 in February from 4.8 in January.