Week in FX Asia – Indian Election Results Boost INR and Sensex


  • India’s Opposition Wins Election by Landslide
  • Election Result Pushes Rupee and Sensex Higher
  • New Indian Government Will Inherit Slow Output and High Inflation
  • Indian Central Bank Could Come Under Pressure From New Government

The largest democracy in the world finished its five week long election process. The final results will be a surprise to no one as the BJP had a strong campaign. In January polls favoured them to win a majority after the party’s leader was hitting all the right notes on the campaign trail. The opposition is on track to win by a landslide and score a majority in the lower house.

The optimism surrounding the potential BJP win aligned with a strong market rally that pushed the currency and the stock market higher. The INR appreciated the whole week to finish at 58.55 after starting the week close to 60 USD/INR. The expectation is for the new government to deliver on its promise of economic growth. Narendra Modi the BJP’s candidate has promised a strong economic revival. The main challenge will be to turn campaign rhetoric against the political establishment into a reality for all Indians.

The economic growth goals could put the new government on a collision course with the Reserve Bank of India. The market has given a lot of credit to Governor Raghuram Rajan for steering India’s economy in the last year as inflation, output and the rupee have been concerns. The interaction between the central bank and the newly elected government is one of the most anticipated partnerships by market participants.

A good working relationship will go a long way of boosting India’s credentials abroad and create optimism surrounding the country’s growth goals. A rivalry could mean a return to the vicious cycle that has engulfed India in the post credit crisis years.


  • College Grad Employment Rises to 94.4 Percent
  • Four Largest Banking Groups Report Increase in Profits in 2013
  • GDP Grows 5.9 Percent on Pre Tax Hike Shopping
  • Japanese Growth Beats Forecasts
  • Wholesale Prices Rise 4.1 Percent in April
  • BOJ Could Be Called Into Action if Japanese Exports Continue To Fall

Japan had on net a very positive week. Inflation continues to rise which will help the economy reach its 2 percent inflation goal. Gross Domestic product surprised to the upside. The GDP rose 1.5% in the first quarter of 2014. The forecasts called for a 1% increase. The major driver for the increase was the introduction of the sales tax hike in April. The higher tax prompted consumers to expedite large purchases to avoid paying the extra tax. Consumer spending accounts for 60% of GDP so the real question is what effect it will has going forward after the new higher sales tax.
The JPY was stuck in a tight range this week and could not pierce the 102 level for too long. The currency finished the week at 101.56 USD/JPY after a good GDP print and uncertainty about the Bank of Japan’s next move.

Next Week in Asia:

  • Reserve Bank of Australia Meeting Minutes
  • Bank of Japan Interest Rate Decision and Monetary Policy Statement
  • Chinese Manufacturing Purchasing Managers Index (PMI)

Next week in Asia there will be a release of the Reserve Bank of Australia’s minutes from their May 6 meeting. The minutes are released two weeks after the interest rate decision to avoid introducing more market moving information at the same time. There is a low level of probability that there will be surprises on the minutes as the meeting held rates at 2.5%. The expectation in the market has shifted to the effect the newly announced budget could have on the economy before the RBA commits to any policy changes.

The Bank of Japan has been under pressure to act since the start of the year. After being the most proactive central bank of 2013 with the bold policy change that gave Abenomics a running start not much has been done by the BOJ. The economy continues to struggle even though it has seen incredible growth in Q1, but boosted by a transitory sales tax hike which increased consumption. Exports continue to fall even with the benefits of a lower yen. The BOJ is probably going to wait for another major central bank to act first with the ECB being the most likely candidate after its President’s comments this month.

Chinese manufacturing has been steadily contracting for the past four months. Next week’s HSBC/Markit Purchase Managers Index will probably confirm the downward trend. The Chinese president Xi Jinping commented last weekend that the country needs to get used to slower growth. The comments were taken as a negative to the question of further stimulus.


* GBP Consumer Price Index
* GBP Bank of England Minutes
* USD Fed Releases Minutes from April 29-30 FOMC Meeting
* GBP Gross Domestic Product
* CAD Consumer Price Index


This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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