• Indian Rupee (INR) slips as high frequency data shows localized lockdown impact
  • RBI buying suspected
  • US Dollar (USD) rises in line with US bond yields
  • President Biden pledges to accelerate the vaccine programme

The US Dollar Indian Rupee (USD/INR) exchange rate is surging higher on Tuesday, extending gains from the previous session.  The pair settled +0.2% on Monday at 72.74. At 11:30 UTC, USD/INR trades +1.17% at 73.84.

The Indian Rupee has been steadily strengthening thanks in part to its improved economic outlook. However, the recent surge in covid cases in the country is changing that. All eight high frequency indicators tracked by Bloomberg appeared to be affected by the jump in cases.

Covid cases in India continue to be elevated, around the 60,000 new cases a day mark. Localised lockdowns are on the rise in an attempt to stem the spread. This is being reflected in the data raising expectations that localized lockdowns could hit consumer mobility and consumer demand in the economy.

Domestic equities surged higher with the benchmark Sensex closing +2.3%. With portfolio inflows into stocks, some analysts suggested that the Reserve Bank of India  were absorbing the inflows after the Rupee’s outperformance versus emerging market peers in recent weeks.

The US Dollar trading higher across the board on Tuesday. The US Dollar Index which measures the greenback versus a basket of 6 majors, trades +0.25% at 93.19 as it continues to trade at 4 month highs.

An accelerating covid vaccine programme in the US, in addition to the prospect of another huge stimulus package has sent US treasury yields surging higher again. The yield on the benchmark 10 year bond climbed to 1.74%.

The Biden administration is expected to lay out plans tomorrow for a huge infrastructure spend of around $3 – $4 trillion. This comes following the $1.9 trillion covid support stimulus approved a few weeks ago.

There is little on the US economic calendar for investors to watch today. However, things start to pick up tomorrow ahead of Friday’s non farm payroll data.