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Euro, Sterling & the Aussie the least attractive- What’s the story for INR versus the Dollar?

Author: Siddhesh Ghare/Wednesday, June 26, 2019/Categories: Exclusive

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Euro, Sterling & the Aussie the least attractive- What’s the story for INR versus the Dollar?

Currencies are driven by the latest turn of events and while the ECB hinted rate cuts for the first time earlier this month, the most recent shift came from the Federal Reserve and the market was positioned the wrong way. The euro was extremely oversold and while a few expected the Fed to be dovish, no one expected 8 members to upend and start favoring a rate cut this year.

While the fundamental outlook for the Dollar shifted with the Fed’s guidance, traders need to be selective about the trades they choose.

The Dollar against the Yen is the most sensitive to headline risk. The biggest story this week will be the upcoming G20 meeting. If Presidents Trump and Xi reach a trade deal, we will see USD/JPY trading back up to 109; but if the talks fail to be fruitful, the combination of continued trade tensions and a dovish Fed will take USD/JPY down to 105.

While Euro, Pound and Aussie are benefitting from U.S. dollar weakness, they are the least attractive currencies to buy because their central banks are also actively thinking about easing. Sterling on the other hand will be hampered by ongoing Brexit uncertainty.

Don’t expect this week’s economic reports to help the Euro as its move right now is driven entirely by the market’s appetite for U.S. dollars. It's no secret that the EZ economy is slowing and inflation is weakening.

The SGD, KRW, CNY have appreciated against the Dollar but the Indian Rupee has underperformed, all thanks to the rising Crude Oil prices which are at a net positive change of more than 10% WoW. With the news of fresh US sanctions on Iran, there seems to be no breather for crude oil which can spoil the game for Indian importers making them pay higher against the Dollar in the near term.

Major currency drivers along with the G20 meetings this week would be US GDP number, consumer sentiment & Eurozone CPI.

(The writer is Head- FX Risk Solutions, Karvy Forex & Currencies Pvt. Ltd.)

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