Indian economy strong, rupee soft
By Vincent-Frédéric Mivelaz
Asia’s fastest growing economy, India, is in good shape. Q2’s GDP grew 8.2%, its highest pace since Q1 2015. 2018’s GDP could end up rising 7.5%, in line with the Reserve Bank of India forecasts. The Indian economy remains less dependent on external demand for growth. However, weakness in the Indian rupee weighs on the current account balance, with growing import costs and rising oil prices since the beginning of the year.
Depreciating by 12% against the greenback since the beginning of the year and trading above the 70 level, USD/INR is expected to continue its rise. The US Federal Reserve’s normalization cycle along with RBI’s moderation of its interventions in foreign exchange are pushing the USD/INR up. The monetary policy meeting on 5 October should see a 0.25% interest rate hike. Currently at 71.32, USD/INR is expected to rise, approaching the 71.40 range in the short-term.
Aussie dead cat bounce?
By Arnaud Masset
The Reserve Bank of Australia held its official cash rate at a record low 1.5%. Nevertheless, the Aussie was better bid: AUD/USD rose to 0.7235 during the Asian session before easing below today’s opening of 0.7214. The Bank maintained its positive view on the economy and is forecasting growth a bit above 3% in 2018 and 2019. Worries remain about household consumption, as household income has been growing slowly, while debt levels are high. The inflation forecast for 2018 is unchanged at 1.75%. However, inflation should pick-up in 2019 and 2020 to 2.25%. The labour market outlook remains positive.
In the early European session, AUD/USD fell 0.55% to $1.1563, while the dollar index rose 0.38% to 95.50. As in the past weeks, geopolitical developments and trade war tensions between the US and China as well as the ongoing negotiation between the US and Canada regarding a revamp of NAFTA are the main drivers in FX.