- Indian exports -12.7%, imports in oil & gold rise
- Oil rising 5% in two days cps gains in Indian Rupee
- US Dollar (USD) trades cautiously lower ahead of FOMC
- No rate change expected, economic projections in focus
The US Dollar Indian Rupee (USD/INR) exchange rate is trading mildly lower on Wednesday, after a positive close in the previous session. The pair settled on Tuesday -0.3% at 73.60. At 10:30 UTC, USD/INR trades -0.08% at 73.54.
India’s trade balance is showing signs of normalising. After months of weak demand both imports and exports are picking up. The trade deficit in August was -$6.8 billion after printing at -$4.8 billion in July.
In August India’s exports declined -12.7% year on year. Imports rose month on month owing to a jump in commodity demand amid low inventory. Oil imports rose to above $6.4 billion whilt gold demand also soared to the strongest level in 15 months. Analysts at Barclays expect to see the trade deficit, which they consider to be low and manageable, to turn into a current account surplus in the FY21.
Meanwhile surging oil prices are acting as a drag. The price of oil has rallied over 5% over the past two days after the American Petroleum Institute (API) revealed a huge decline in inventories -9.5 million barrels vs 2.04 million increase expected. Production disruptions in the Gulf of Mexico due to Hurricane Sally is also boosting the price of oil.
US Dollar is edging lower versus its major peers as investors look cautiously ahead to the Federal Reserve monetary policy decision latter today. The Fed is expected to hold steady, with no changes to monetary policy.
The principal focus will be on the economic projections, particularly growth and inflation. The dot plot, which maps out the Fed’s interest rate expectations could fall reflecting the central banks’ recent change of approach. The shift is policy framework will see the Fed allowing inflation to overshoot 2% to make up for the long periods of inflation running below 2%. This could drag on demand for the US Dollar.