• Indian Rupee (INR) follows equity markets lower
  • Indian Chinese border concerns remain, although the situation improves
  • US Dollar (USD) trades lower versus major peers after Senate fails to agree additional stimulus
  • US inflation in focus, core CPI +0.2% mom.

The US Dollar Indian Rupee exchange rate is extending gains for a second day on Friday. The pair settled +0.2% in the previous session at 73.43. At 11:30 UTC, USD/INR trades +0.17% at 73.55. The Rupee is on track for a 0.37% loss across the week, its second straight week of losses.

The Rupee is tracking the decline in domestic equity markets, although softer oil prices are lending some support.  West Texas Intermediate is trading -0.5% lower following a surprise build in inventories. Foreign Institutional Investors were net sellers in the Indian equity markets, adding pressure to the Rupee.

India – China border concerns are dragging on sentiment in addition to the continuing surge of covid infections in India. Whilst foreign ministers of both India and China have reportedly agreed that the current situation on the ill-defined border is not beneficial for either side, tension still remain elevated. The ministers are also in agreement that troops in the region should disengage.

The US Dollar is trading broadly lower versus its major peers amid a broad risk on feel in the market and despite the US Senate failing to agree to the democrat led $300 billion additional stimulus to cushion the US economy from the coronavirus crisis.

Core inflation, which discounts more volatile items such as food and fuel is expected to rise 0.2% month on month in August. On an annual basis, inflation is forecast at 1.6%. This is still below the 2% that the Fed has set as its average target.

Inflation at wholesale level, as measured by the producer price index, printed slightly higher than expectations. Economists are also expecting today’s print to show a continued rebound in inflation.

Investors are brushing off a rising tensions between the US and China after Trump revoked the visas of 1000 Chinese students on security fears.