Fall in USD Index Against Majors & Asian Currencies Led to a Retreat in USD/INR

  • Market Overview

USD/INR opened the day a lot weaker at 75.11 registering a loss of 23 paise/USD over its Monday’s close. The retreat in the currency pair was due to a moderate fall in the US Dollar Index Futures against majors including commodity-linked currencies and also against some Asian currencies.

An increase in risk appetite elevated equities, commodities and commodity-linked currencies and weighed on safe-haven assets. Euro is approaching near a 1-month high and trading well above 1.1650 level, highest since 28-9-21. After BOE Governor sent a fresh signal for early UK rate hikes by saying that the Central Bank will have to act to counter rising inflation risks. The pound gained significantly to currently trading at 1.3810, close to a 1-month high.

After the RBI halted the G-SAP auction, the bond yields are slowly climbing higher. The sporadic rise in US benchmark Treasury yields lifted the sovereign bond yields. The higher bond yields are also supported by global oil prices remaining high. Bond prices dipped following the weekly gilt auction which also included the 10-year bond note. The 10-year bond yield is currently trading a lot higher at 6.40%, Against August CPI inflation at 4.23% in September, the October retail inflation is expected to be above 5% due to steep increase in oil prices combined with higher food inflation, as the prices of vegetables and fruits are at higher levels due to unseasonal reasons destroying the crops and limiting the supply.

Amid weak US factory data, the dollar fell to currently trading at 93.67 and most of the Asian stocks gained today, though the Asian currencies are trading a tad lower at this point in time. Amid a general dollar weakness, Chinese Yuan significantly gained to trade around a 4-month high of 6.3850. Yuan advanced as the dollar fell hard against major currencies.

Oil futures are trading at a multi-year high on the back of growing signs of market tightness and as shortages of natural gas and coal in Europe and Asia boosted demand for oil. The EIA said the Energy crisis is expected to push demand for oil up by 500,000 bpd leading to a supply deficit of 700,000 bpd until January 2022. WTI futures hit a fresh 7-year high of USD 83.87/barrel on 18-10-21.

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