Indian rupee on Monday strengthened against US dollar after GDP growth accelerated to a nine-quarter high in the first quarter. At 9.15am, the rupee was trading at 70.84 a dollar, up 0.23%, from its Friday’s close of 71. The home currency opened at 70.78 a dollar and touched a high of 70.77. The 10-year bond yield stood at 7.942%, from its previous close of 7.952%. Bond yields and prices move in opposite directions.
Indian economy grew 8.2% in June quarter, from a year earlier, the statistic ministry said on Friday. That was faster than the 7.6% median estimate in a Bloomberg survey of 42 economists.
Rupee strengthens against US dollar after GDP beats estimates
“Overall, the data suggest an economy in the midst of a strong recovery in Q2, but the key question is its sustainability. We have our doubts because higher oil prices, tighter global financial conditions and our view that the global economy is set to cyclically slowdown suggest a number of external headwinds,” Nomura said in a note to its investors.
“Moreover, we expect the government to cut capital expenditure (given budget constraints) and investment decisions to be delayed (political uncertainty ahead of elections). Therefore, we believe that growth cyclically peaked in Q2 and will slow to an average of 7.2% in H2 2018, in line with signals from Nomura’s composite leading indicator for India.”
“The Q2 GDP data should not have any impact on monetary policy as the data are lagged and rate hikes were already frontloaded (in expectation of a closing output gap). From a growth-inflation standpoint, we don’t see a reason for the RBI to hike rates any further. Recent moves in oil prices and the rupee are adding to input cost pressures, but a slower-than-expected build-up in food prices should offset these upside risks. Additionally, if we are right about an impending growth slowdown, then core inflationary impulses should also moderate,” Nomura report added.
On international front, traders are cautious as Trump administration’s plans to impose further $200 billion of tariffs on Chinese imports as early as this week. Analyst expects yuan, which has lost more than 6% against the dollar in the past three months, would extend its decline if Beijing retaliates.
Traders can also look forward to purchasing managers’ indexes from across emerging markets as well as Chinese trade statistics. All that before Friday’s U.S. monthly payrolls data, which could be key to determining where the dollar heads after it touched a 14-month high in August
Economists expect the August U.S. jobs report to show employers added 193,000 positions, while the unemployment rate fell to 3.8 percent, matching the lowest since 1969
Benchmark Sensex Index rose 0.58% or 225.17 points to 38,870.24. Since January, it has gained 13.47%.
So far this year, the rupee has weakened 10.04%, while foreign investors have sold $282.60 million and $5.60 billion in equity and debt markets, respectively.
Asian currencies were trading lower. Indonesian rupiah was down 0.47%, Malaysian ringgit 0.36%, China renminbi 0.11%, South Korean won 0.1%, China Offshore 0.06%. However, Philippines peso was up 0.14%, Japanese yen 0.11%.
The dollar index, which measures the US currency’s strength against major currencies, was trading at 95.16, up 0.02% from its previous close of 95.14.