- Indian Rupee pulls back from monthly high
- Concerns grow over Indian’s budget deficit amid heavy covid-19 spending
- Dollar gains as 2nd wave infection fears overshadow economies reopening
- USD/INR +0.3% at 75.77 at 11:15 UTC > Real time exchange rate
The Indian Rupee is edging lower on Monday, paring some gains from the previous week. The Indian Rupee advanced 0.3% against the greenback in the previous week, its third straight week of gains, closing the week at 75.53.
At 11:15 UTC, USD/INR is trading +0.3% at 75.77. This is towards the upper end of the daily traded range of 75.45 – 75.97 as the pair recovers from a monthly low reached at the end of last week.
The Indian Rupee is slipping lower amid growing concerns over the impact of the coronavirus outbreak on the Indian economy. Global rating giants such as the International Monetary Fund (IMF) and World Bank have already given downbeat forecasts of Indian economic growth owing to the covid-19 outbreak. Investment banks Nomura and Goldman Sachs are also upping their warnings over the state of the India economy after an extended lockdown.
Nomura forecasts that the Indian GDP will contract -14.5% from April – June, whilst Goldman Sachs focused on the government’s fiscal stance, to forecast an 8% deficit versus the 3.5% budgeted figure. Goldman Sachs pointed out that aggressive fiscal easing could impact ratings, increase borrowing costs and lead to greater capital outflows associated with a weaker Rupee.
Goldman Sachs is not alone in its projection. Citigroup is also expecting India’s budget deficit to widen to 8% of the GDP this year. The bank also points out that the situation would be much worse if oil prices hadn’t crashed.
The safe haven US Dollar started the week off on the back foot but has since gathered strength versus its peers, as the mood in the market starts to sour. Risk sentiment is declining as investors weigh up the gradual reopening of economies against fears of a second wave of infections. South Korea has reported a flare-up in cases in Seoul, whilst Germany’s R rate (reproducction rate) increased above 1.
The rise in demand for the safe haven US Dollar comes after investors brushed off dire US jobs data last week. US Jobs data showed that 20.5 million jobs were lost in the US in April and the unemployment level jumped to 14.7%. The Dollar barely moved following the release on Friday.
There is no high impacting US economic data due to be released today. Investors will look ahead to tomorrow’s inflation reading and Federal Jerome Powell’s testimony.
