opened the day almost unchanged from its Friday’s close, despite the disappointing US jobs data opening up the possibility of a delay in the announcement of the Fed tapering timeline.
The addition of 235,000 US jobs last month falling well short of forecasts of 750,000 jobs addition is the smallest jobs gain in seven months suggesting US Central Bankers will need to see additional gains before starting to slow bond buying. August unemployment rate however improved to 5.2% from 5.4% this July. In reaction to the unenthusiastic jobs data, the dollar index fell to a low of 91.94 on Friday and currently trading at 92.20. It is now certain the Fed will announce deferment of tapering timeline in their September meeting which could lead to a grand recovery in riskier assets. Disappointing jobs data in one month may not continue in future months and hence one can expect a recovery in the dollar index will take place in the forthcoming period.
Even though India’s exports jump 45% to USD 33.14 billion in August as against USD 22.83 billion in the same month last year, the trade gap has widened to USD 13.87 billion in August 2021. Exports in August have declined from an average of over USD 35 billion registered in the last 3 months period suggesting the need to maintain a competitive exchange rate to achieve the export target of USD 400 billion set by the Government for the current fiscal. The market participants expect the RBI to actively intervene in the market to halt any sharp depreciation in the rupee beyond the 72.80 level on a sustainable basis.
Inflows into Indian companies by way of IPOs, corporate borrowing, issuance of Tier-1 bonds by two banks and MSCI month-end rebalancing flows shall support the rupee on a continuous basis and a test of 72.80 stiff resistance is quite possible before one can expect the Central Bank to rigorously intervene in the market to push the rupee back to trade above the 73 levels. On the other side, rising India’s trade deficit and weakness in manufacturing PMI does not support the rupee’s continuous rally and odds of depreciation increase from the current level.
The IMF has made an allocation of SDR equivalent to USD 17.86 billion to India and with this, the total SDR holdings of India now stands at USD 19.41 billion. The increase in SDR holdings equivalent of USD 17.86 billion has been reflected as an increase in forex reserves to hit an all-time high of USD 633.56 billion in the week ending 27-8-21. The allocation of the SDR quota for India is in proportion to the country’s existing quotas in the fund.
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