USD/INR Rupee Rebounds to Below 60 on Fed Comments

The Indian Rupee was one of the worst performers in the currency markets in June. It had a decline of over 10% as QE tapering fears gripped the market. Emerging markets were hit hardest, but given India’s growth slowdown and lack of structural reform the Rupee touched two all time lows in the span of two weeks in the last week of June and first week of July.

USD/INR Daily Forex Graph for July 11, 2013

Comments from Ben Bernanke have cooled the expectation of the market regarding the end of QE. A higher than expected unemployment claims took the wind out of the employment recovery sails momentarily. The USD retreated across the board.

USD/INR Weekly Forex Graph forJuly 11, 2013

The Reserve Bank of India has been powerless to stop the decline and has declared openly that they don’t have a price target and will not defend one. Behind the scenes however there have been rumours about reducing speculative flows by talking to directly to dealers. Another soft tactic used by the Central Bank is the fact that they have directed Oil refiners to centralize their USD transactions with a single designated bank to avoid additional market speculation if they seek competing bids on their currency transactions.

USD/INR Monthly Forex Graph for July 11, 2013

The RBI has said on record that there can’t be an interest rate cut if market volatility continues. Global factors have aligned to push the Rupee even lower than its economic fundamentals would value the currency. The European debt and social crisis, the Japanese battle with deflation, the slowdown in China and the potential end of QE have been singled out by the IMF as the biggest risks to global growth.

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza