The US dollar is up against the Indian rupee on Thursday morning in a broad showing of dollar strength that builds on gains yesterday following the highest producer price inflation since 2018 and the highest monthly housing starts since before the ’08 financial crisis.
USD/INR was higher by 4 pips (+0.05%) to 71.65 with a daily range of 71.52 to 71.85 as of 10am GMT. The modest gains leave the currency higher by +0.17% on the week.
USD/INR – Indian economy to benefit more from the Chinese central bank stimulus
The Indian economy stands to benefit more from the stimulus measures implemented by the Chinese central bank than the United states, so that explains the limited downside so far in the rupee. The People’s Bank of China has cut its benchmark lending rate by 10 basis points. The 1-year Loan Prime Rate (LPR) was cut to 4.05% and 5-year rate to 4.75%. The purpose is to encourage bank lending at a time when the economy is at risk from the coronavirus. If the higher lending manages to boost economic activity in China, this should benefit the whole region via trade and tourism, including India.
Still, the uncertainty around the coronavirus remains and that means the dollar will still be attractive as a haven, while Asian currencies will be at risk. Chinese authorities reported that as of Wednesday there had been 114 news deaths and 394 new cases, which is down from 1749 yesterday. However, the methodology for diagnosis has been changed again to exclude CT scans, which is disproportionately affect the improvement in the data.
The dollar
Consistently better than anticipated economic data from the United States that started with this month’s payrolls report is underlying the dollar strength. Although somewhat out-of-date the latest Federal Reserve minutes showed the Fed too is broadly happy with the state of the US economy and plans to keep interest rates steady, calling the current range of 1.50-1.75% “appropriate”.
Later today, the dollar could be impacted indirectly by the accounts from the latest ECB meeting where interest rates were held steady but with a dovish bias. There is also jobless claims and the Philly Fed manufacturing index.
